A bipartisan tax bill that would improve the widely used Child Tax Credit and help millions of American families has been passed by the House of Representatives[1][2]. A $79 billion tax cut package included in the measure would increase three company tax benefits and improve the child tax credit for millions of lower-income people. Voters approved the bill 357–70[3].
Please note that the bill still needs to be passed by the Senate before it can become law[4][5]
Before becoming law, the Senate must approve the bipartisan tax package that was passed by the House of Representatives[6][7]. On January 31, 2024, the bill was transmitted to the Senate[9]. It is unknown when the Senate will cast a vote on the bill as they have not yet done so. Nonetheless, some Senate Republicans have requested hearings over the bill, while others are seeking modifications[8].
What is the Child Tax Credit?
The Child Tax benefit is a federal tax benefit that offers American families with eligible children financial support[10]. Taxpayers who have a dependent kid under the age of 17 are eligible to claim the credit. The credit can only be used up to $2,000 for each eligible child[11]. Refundable amounts up to $1,400 are available for each eligible child[12].
Taxpayers with an adjusted gross income up to $200,000 (or $400,000 for married couples filing jointly) may be eligible for the credit. Schedule 8812, Credits for Qualifying Children and Other Dependents[13][14], must be completed in order to claim the credit on Form 1040, U.S. Individual Income Tax Return.
Millions of American families will benefit from the enhanced Child Tax Credit as a result of the recently passed bipartisan tax package 45. A $79 billion tax cut package included in the measure would increase three company tax benefits and improve the child tax credit for millions of lower-income people[15]. The amount of money allotted to each tax break in the law is displayed in the bar chart below:
How do I know if my child qualifies for the Child Tax Credit?
To qualify for the Child Tax Credit, your dependent child must meet the following criteria[16]:
- Be under age 17 at the end of the year.
- Be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (for example, a grandchild, niece or nephew).
- Provide no more than half of their own financial support during the year.
- Have lived with you for more than half the year.
- Be properly claimed as your dependent on your tax return.
- 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.
- Have been a U.S. citizen, U.S. national or U.S. resident alien.
A resident alien for tax purposes is a person who is a U.S. citizen or a foreign national who meets either the “green card” or “substantial presence” test as described in IRS Publication 519, U.S. Tax Guide for Aliens.
For every eligible child with a Social Security number that is good for work in the US, you can claim the Child Tax Credit[17]. The credit can only be claimed for a maximum of $2,000 per eligible child. Up to $1,400 in credit is refundable for each eligible child. Taxpayers having an adjusted gross income of up to $200,000 (or $400,000 for married couples filing jointly) are eligible for the credit[18].
The credit can be obtained by completing Schedule 8812, Credits for Qualifying Children and Other Dependents, and attaching it to Form 1040, U.S. Individual Income Tax Return, along with your children and other dependents’ information[18].
How much money can I save with the Child Tax Credit?
The amount of money you can save with the Child Tax Credit depends on your income and the number of qualifying children you have 12. The maximum amount of the credit is $2,000 per qualifying child 13. The credit is refundable up to $1,400 per qualifying child 13. To qualify for the credit, your dependent child must meet certain criteria 1. You can claim the credit by entering your children and other dependents on Form 1040, U.S. Individual Income Tax Return, and attaching a completed Schedule 8812, Credits for Qualifying Children and Other Dependents 13.
The following table shows the maximum amount of the Child Tax Credit you can claim based on your income and the number of qualifying children you have 2:
| Number of Qualifying Children | Adjusted Gross Income (AGI) | Maximum Credit |
|---|---|---|
| 1 | Less than $75,000 | $2,000 |
| 1 | $75,000 to $200,000 | $2,000 – ($50 x (AGI – $75,000))2 |
| 1 | More than $200,000 | $0 |
| 2 or more | Less than $75,000 | $2,000 per child |
| 2 or more | $75,000 to $200,000 | $2,000 per child – ($50 x (AGI – $75,000))2 |
| 2 or more | More than $200,000 | $0 |
Please note that the recently passed bipartisan tax bill enhances the Child Tax Credit to benefit millions of American families 13. The bill includes a roughly $79 billion tax cut package that would enhance the child tax credit for millions of lower-income families and boost three tax breaks for businesses 3. The bill still needs to be passed by the Senate before it can become law 13.
What is the difference between a tax credit and a tax deduction?
Although they operate differently, a tax credit and a tax deduction can both lower your tax liability[19].
Dollar for dollar, the amount of tax you owe is directly decreased by a tax credit. For instance, your tax payment will be lowered to $4,000[20] if you had a $1,000 tax credit and a $5,000 tax liability.
A tax deduction lowers the taxable portion of your income. For instance, you will only pay taxes on $45,000 of your income if you make $50,000 and receive a $5,000 tax deduction. The tax savings you receive from a tax deduction are determined by your tax bracket[21].
What are some other tax credits?
There are several other tax credits available to American taxpayers. Here are some examples:
- Earned Income Tax Credit (EITC): A refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children[22].
- American Opportunity Tax Credit (AOTC): A tax credit for qualified education expenses paid for an eligible student for the first four years of higher education[22] .
- Lifetime Learning Credit (LLC): A tax credit for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution[22].
- Saver’s Credit: A tax credit for eligible contributions to an IRA, 401(k), or other retirement savings plan[22] .
Please note that eligibility requirements and other details vary for each tax credit. You can find more information about these and other tax credits on the IRS website[22].
How do I claim a tax credit or deduction?
To claim a tax credit or tax deduction, you need to file your tax return and provide the necessary information 12.
To claim a tax credit, you need to answer questions in your tax filing software. If you file a paper return, you’ll need to complete a form and attach it 1. Here are some examples of tax credits you can claim:
- Earned Income Tax Credit (EITC): A refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children 13.
- American Opportunity Tax Credit (AOTC): A tax credit for qualified education expenses paid for an eligible student for the first four years of higher education 14.
- Lifetime Learning Credit (LLC): A tax credit for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution 1 .
- Saver’s Credit: A tax credit for eligible contributions to an IRA, 401(k), or other retirement savings plan 1.
To claim a tax deduction, you need to show expenses or losses you want to deduct by providing documents 1. Your tax software will calculate deductions for you and enter them in the right forms. If you file a paper return, your deductions go on Form 1040 and may require extra forms 1. Here are some examples of tax deductions you can claim:
- Charitable donations: You can deduct donations made to qualified charitable organizations 1 .
- Mortgage interest: You can deduct the interest paid on a mortgage for your primary residence 1 .
- State and local taxes: You can deduct state and local income, sales, and property taxes up to a certain amount 1 .
- Medical expenses: You can deduct medical expenses that exceed a certain percentage of your adjusted gross income 1 .
Please note that eligibility requirements and other details vary for each tax credit and deduction. You can find more information about these and other tax credits and deductions on the IRS website 1.
To claim a tax deduction, you need to show expenses or losses you want to deduct by providing documents ¹. Your tax software will calculate deductions for you and enter them in the right forms. If you file a paper return, your deductions go on Form 1040 and may require extra forms ¹. Here are some examples of tax deductions you can claim:
- Charitable donations: You can deduct donations made to qualified charitable organizations 1 .
- Mortgage interest: You can deduct the interest paid on a mortgage for your primary residence 1 .
- State and local taxes: You can deduct state and local income, sales, and property taxes up to a certain amount 1 .
- Medical expenses: You can deduct medical expenses that exceed a certain percentage of your adjusted gross income 1 .
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Please note that eligibility requirements and other details vary for each tax credit and deduction. You can find more information about these and other tax credits and deductions on the IRS website1 .
