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News

Congressional Tax Committee Chairs Agree to Expand Child Tax Credit

By:
S.J. Steinhardt
Published Date:
Jan 16, 2024

GettyImages-514724910-child-tax-credit

The chairs of the two congressional tax-writing committees reached an agreement to extend a number of expired tax credits and tax breaks, one of which is the Child Tax Credit, The Washington Post and others reported.

If passed into law, the roughly $80 billion legislative package would make the program more generous, largely for low-income parents, as soon as this year. In exchange for making the existing child tax credit more generous, a priority for Democrats, the deal would continue several business tax breaks favored by corporate America, a Republican priority.

“American families will benefit from this bipartisan agreement that provides greater tax relief, strengthens Main Street businesses, boosts our competitiveness with China, and creates jobs,” said Rep. Jason Smith (R-Mo.), chair of the House Ways and Means Committee, in a joint statement with Sen. Ron Wyden (D-Ore.). “I look forward to working with my colleagues to pass this legislation.”

“Fifteen million kids from low-income families will be better off as a result of this plan, and given today’s miserable political climate, it’s a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead,” said Wyden, chair of the Senate Finance Committee, in the statement. “My goal remains to get this passed in time for families and businesses to benefit in this upcoming tax filing season, and I’m going to pull out all the stops to get that done.”

The proposed legislation would, according to the joint statement:

• Expand access to the child tax credit by phasing the increase to the refundable portion of the child tax credit for 2023, 2024, and 2025;

• Eliminate the penalty for larger families by ensuring that the child tax credit phase-in applies fairly to families with multiple children;

• Provide a one-year income lookback that gives flexibility for taxpayers to use either current- or prior-year income to calculate the child tax credit in 2024 or 2025, similar to bipartisan action taken six times in the past 15 years; and

• Adjust the tax credit for inflation starting in 2024.

Under this new program, taxpayers would have to claim the entire credit on their returns to receive any money, as they have in all years except for 2021, the Post reported. In that year, half of the credit was paid out in installments to taxpayers, and the other half was eligible to be claimed on tax returns the following year.

Currently, only middle- and upper-income families receive the full $2,000 credit per child because many low-income families who do not earn enough to owe more than the credit is worth cannot take full advantage of it, according to the Post. This agreement would allow poor families to be eligible to receive the tax credit for every child, even if they do not qualify for the full $2,000 per child.

While lawmakers aim to pass the legislation so that the new benefit can take effect in time for the upcoming tax filing season, a group of IRS managers warned of such a goal’s potential impact.

The deal is “too late for 2023 taxes,” Kelly Reyes, executive director of the Professional Managers Association, said in a statement reported by Accounting Today. "The IRS cannot implement the changes Congress is considering for this filing season without considerable delay, misunderstanding, and waste. Ultimately, we worry this will frustrate and confuse taxpayers more than it will benefit them.”

She also cited potential problems issues such as the reprinting of thousands of forms and preparation of documents, and the retraining of seasonal and permanent IRS employees, all of which could lead to delays in processing returns and issuing refunds.

In a news conference last week, IRS Commissioner Danny Werfel was asked about potential last-minute changes in the tax law.

“In terms of tax packages that occur late in the year for us, which means right before filing season starts or right after, the IRS is no stranger to these types of late-breaking changes to the code that impact either the imminent filing season or the filing season that we’re in,” he responded, according to Accounting Today. “As we’ve done in previous years, we’ll review the legislation, roll up sleeves and get the job done. It’s hard for me to fully comment until we see the details of any tax package, but just based on precedent and prior years, the IRS has shown a resiliency and an ability to quickly turn around these types of packages.”

To help pay for the package, the agreement would end the Employee Retention Tax Credit (ERC) program, which has been plagued by cost overruns and fraud. Lawmakers estimate that this measure would save over $70 billion in taxpayer dollars by accelerating the deadline for filing backdated claims to Jan. 31, 2024, Accounting Today reported.