The Child Tax Credit (CTC) is a significant part of the U.S. tax code that provides a tax break for families with qualifying children. In 2024, there have been some important developments and potential changes to the CTC that could impact millions of families. Here’s what you need to know.
Current State of the Child Tax Credit
For the 2023 tax year, families can get up to $2,000 for each child under 17 through the Child Tax Credit. If they owe less in taxes than the credit amount, they can still get back up to $1,600 as a refund.
Who’s eligible for Child Tax Credit?
Here are the key eligibility criteria for the CTC:
- Age and Relationship: The child must be under 17 at the end of the tax year and must have a specific familial relationship with the taxpayer. This includes biological, adopted, or foster relations.
- Financial Support: The child must not provide more than half of their own financial support during the year.
- Residency: The child must have lived with you for more than half the year.
- Dependent Status: The child must be properly claimed as your dependent on your tax return.
- Joint Return: The child must not file a joint return with their spouse for the tax year or file it only to claim a refund of withheld income tax or estimated tax paid.
- Citizenship: The child must have been a U.S. citizen, U.S. national or U.S. resident alien.
- Income Thresholds: You qualify for the full amount of the 2023 Child Tax Credit for each qualifying child if your annual income is not more than $200,000 ($400,000 if filing a joint return). Parents and guardians with higher incomes may be eligible to claim a partial credit.
Proposed Changes in 2024
There are ongoing discussions about expanding the CTC. The House has approved a bill called the “Tax Relief for American Families and Workers Act of 2024” that would expand the credit for parents. This bill, if passed, would make several important changes:
- Increased Credit Amount: In the 2024 tax year, the highest refundable portion of the child credit will rise to $1,900, up from the present cap of $1,600 per child.
- Income Calculation Changes: Taxpayers have the option to base the Child Tax Credit calculation on their income from either the current year or the previous year. This flexibility is beneficial, especially if a family’s income decreases, making them ineligible for the credit under the existing guidelines.
- Credit Calculation Changes: Under the new formula, the parent’s income will be multiplied by 15% and also by the number of children in the family. This means that families with two or more children and lower incomes could be eligible for a larger Child Tax Credit.
Impact of the Changes
The proposed changes could have a significant impact on families. The increase in the Child Tax Credit could raise up to 400,000 children out of poverty and provide additional financial assistance to another 3 million children in families earning below the poverty threshold.
It’s crucial to understand that these modifications are currently only proposals and have not been enacted into law. Families might be uncertain about whether to proceed with filing their taxes until a bill is officially passed.
Conclusion
The Child Tax Credit is a valuable tax break that helps many families. The proposed changes in 2024 could make it even more beneficial, especially for families with lower incomes. However, until these changes are officially passed into law, families should continue to plan based on the current rules. Stay tuned for updates as the situation continues to evolve.
Remember, it’s always a good idea to consult with a tax professional to understand how these changes might impact your personal tax situation. Contact KYKY for personalized tax assistance. We can help you make informed decisions and ensure you’re taking full advantage of the tax benefits available to you and your family.
