Would Taxing the Child Tax Credit Like Social Security Solve the Build Back Better Issue?

Smiling couple with a child and a dog enjoy outdoors on the snow .
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With the Build Back Better bill still stuck in Congress, politicians and pundits, alike, are pondering ways to make it more palatable. A key sticking point is the highly controversial Advance Child Tax Credit, which advanced families making less than $150,000 (married, filing jointly) a credit of up to $300 per child, per month, for the final six months of 2021. Above $150,000, the credit begins to phase out until the taxpayers’ adjusted gross income reaches $400,000. Then it disappears.

See: Child Tax Credit: I Received Money, But Don’t Usually Submit a Return — Do I Need to File Taxes This Year?
Find: Stimulus Update: How To Request an IRS Trace for Lost Child Tax Credit Payment

The advance CTC is currently part of the Build Back Better bill in this form, but lawmakers are trying to find a way to ensure low-income families who need the credit most receive it while taking it off the table for those with higher incomes.

In a recent think piece in Forbes, Howard Gleckman of the Tax Policy Center and The Urban Institute presented some scenarios that could keep the CTC intact for those who need it most, including taxing the CTC much like Social Security income is taxed today.

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How The Government Could Tax the CTC Like Social Security

Gleckman described a taxable child tax credit as the government “giving money with one hand and taking it back with the other.” It’s an apt description. But married couples filing jointly with incomes of $32,000 ($24,000 for single taxpayers) who receive social security income pay taxes on a portion of their benefits. Alaska’s Permanent Fund Dividend program benefits are also taxable at the federal level.

However, combining the CTC phase-out at some higher income level with taxes on those who receive the credit would, essentially, equate to a tax cut for higher-income households with children, Gleckman pointed out, while taxing the middle class. In one scenario, the credit could phase out at some higher income level. Or, only benefits above a certain amount would be taxed. However, these contingencies would make the law more complicated.

Other Possibilities to Keep CTC in Build Back Better

Other options for keeping the CTC in the bill could involve a tax rate increase for higher-income taxpayers, phasing out the CTC at a lower income level than $400,000, or finding other ways to pay for the benefit, such as eliminating or reducing the state and local tax (SALT) deduction.

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See: Stimulus Alert: Manchin Wants Child Tax Credit Earnings Limit at $60K — Is It a Realistic Threshold?
Find: Goldman Sachs Lowers US GDP Forecast Following Manchin’s Build Back Better Opposition

In 2021, the Advance CTC helped provide food and necessities to more than 3 million children previously in poverty, while helping another 33 million families pay down debt, save for college, or simply make ends meet. Keeping the credit in the Build Back Better build can help build a stronger financial future for the country.

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About the Author

Dawn Allcot is a full-time freelance writer and content marketing specialist who geeks out about finance, e-commerce, technology, and real estate. Her lengthy list of publishing credits include Bankrate, Lending Tree, and Chase Bank. She is the founder and owner of GeekTravelGuide.net, a travel, technology, and entertainment website. She lives on Long Island, New York, with a veritable menagerie that includes 2 cats, a rambunctious kitten, and three lizards of varying sizes and personalities – plus her two kids and husband. Find her on Twitter, @DawnAllcot.

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