What Is the Status of the Child Tax Credit in the United States

Below is a brief overview regarding recent modifications to the Child Tax Credit (CTC) in the United States, its legislative history, and potential proposals in the 118th Congress.

A summary is as follows:

Legislative History:

1. Permanent Law (2017): Allowed eligible households to reduce income tax liability by up to $1,000 per child aged 16 or lower.Lower-income working taxpayers could receive a refundable portion (ACTC) phased in with earned income.
2. Tax Cuts and Jobs Act (TCJA; P.L. 115-97 - In effect through 2025): Increased the maximum credit amount to $2,000 per child. Modified the ACTC formula and capped the refundable portion.Increased income levels for phase-out.
3. American Rescue Plan Act of 2021 (ARPA; P.L. 117-2 - Changes for 2021 only): Increased the maximum credit to $3,000 per child ($3,600 for young children).Eliminated the phase-in for low-income taxpayers ("full refundability").Expanded eligibility age to include 17-year-olds. Changes expired at the end of 2021.

Proposals in the 118th Congress:

1. Various Proposals: Interest in expanding the credit, especially for low- and moderate-income families. Some proposals aim to reinstate modified versions of ARPA changes. Concerns about discouraging work if ARPA changes are extended.
2. Elaine Maag's Proposal: Adjusts the credit formula to begin phasing in the refundable portion with the first dollar of earned income. Repeals the $1,400 limit on ACTC. Increases the phase-in to 15% per child. Estimated to reduce the number of children in low-income families receiving less than the maximum credit.
3. Other Proposals: Senator Romney’s Family Security Act 2.0 and Jacob Bastian's proposal. Some propose increasing the maximum credit and allowing a smaller "fully refundable" credit for non-working households.

Budgetary Impact:

1. Costs: Permanent law child credit: ~$50 billion per year. TCJA changes (if extended): ~$80 billion per year. ARPA changes for 2021: Increased costs by an additional $105 billion per year. Maag proposal estimated to cost an additional $8 billion per year on top of TCJA changes.

Future Considerations:

Policymakers may consider: Retaining the overall TCJA child credit with adjustments. Modifying ID requirements.Adjusting parameters to increase with inflation.

Stay tuned - This information provides an overview of the recent history and potential future changes to the Child Tax Credit in the United States.

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