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Katelyn Washington

New Child Tax Credit: What Is Congress Negotiating?

US Capitol building .

Restoring a version of the pandemic-era expanded child tax credit is one of several tax changes Congress is negotiating as they approach a key government funding deadline. Lawmakers have not yet reached a final agreement but made some progress in negotiations on Wednesday.  

Senate Finance Committee Chair Ron Wyden, D-Ore. told reporters that Democrats are “all in” with reaching a deal by Jan. 29 when tax season officially begins. “Now it’s a question of going through some of the nuts-and-bolts process questions of determining the benefits,” Wyden added.

So, what could a new expanded federal child tax credit look like? Here’s what you should know.

New child tax credit for 2023? 

If Congress reaches a deal on the child tax credit by Jan. 29, lawmakers say eligible families could benefit as soon as next month. That’s because the credit would be available for the 2023 tax year (for tax returns filed early in 2024). However, the expansion, if it does happen, won’t reach as far as it did under President Joe Biden’s American Rescue Plan. 

Here are some of the possibilities Congress is discussing:

  • Ensuring families with the lowest incomes will qualify for the credit by removing the minimum taxable income threshold
  • Allowing families to submit prior year tax returns to claim the expanded credit
  • Increasing the refundable portion of the child tax credit 

None of the above possibilities are official, and the details could change as Congress continues to discuss the matter. However, families with the lowest incomes would likely benefit the most.

Expanded child tax credit deal

Expanding the child tax credit would come with a hefty price tag of approximately $80 billion, and how the expansion will be funded is key in negotiations between Democrats and Republicans. The clawing back of another pandemic-era tax credit, the employee retention credit (ERC), could in part fund a new child tax credit deal. 

The ERC offered incentives to businesses to retain employees, but as Kiplinger has reported, the IRS has seen a significant amount of fraudulent ERC claims. The agency issued a moratorium on processing new claims in 2023 and has already taken steps to allow taxpayers to withdraw or pay back potentially incorrect claims.

However, funding an expanded child tax credit is not the only hurdle Democrats are facing. The party will need to compromise with Republicans on other issues, which include restoring some business incentives from the Tax Cuts and Jobs Act (also known as the Trump Tax Cuts). Democrats appear willing to do what it takes to make the expansion happen.

Impacts of the CTC expansion 

The pandemic-era expanded child tax credit kept millions of children out of poverty, but that changed when the credit expired.  Data show that the poverty level increased from 5.2% to 12.4% when families could no longer benefit from the expansion. 

Democrats have been trying to bring the federal expanded child tax credit back since its expiration, but past attempts have failed. However, lawmakers are now closer than ever to partially restoring the credit.

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