When President Joe Biden delivered his State of the Union address on Feb. 7, 2023, he called on Congress to reinstate the expired expanded Child Tax Credit that was a result of the American Rescue Plan.
In 2021, the Child Tax Credit increased from $2,000 per child to $3,000 per child for children ages 6 to 17 and $3,600 per child for children under 6. The plan also raised the age limit from 16 to 17. However, for tax year 2022, those increases went away.
“Let’s also restore the full Child Tax Credit,” Biden said in his address, “which gave tens of millions of parents some breathing room and cut child poverty in half, to the lowest level in history.”
Back in early 2022, It was a major blow to the activists who fought in vain to renew the expanded child tax credit, which dried up after Democratic Sen. Joe Manchin bucked his own party in defeating the bill that would have extended the credit into 2022.
And while Senator Mitt Romney came up with a new child tax credit proposal last year to provide a monthly cash benefit of up to $350 for working American families, by the end of last year, nothing had transpired on that front. However, now that President Biden has called on Congress to renew the expanded tax credit, what will happen remains to be seen.
Here are four things you should know about the Child Tax Credit before you file your taxes this year.
Romney’s Proposal Fell Short
GOP Sen. Mitt Romney worked on a bill in 2022 that proposed to expand the Child Tax Credit once again. His original proposal allowed families with no income to receive the credit, but Manchin and some members of the Republican party pushed back. As a result, the proposal now includes a minimum income threshold of $10,000 to qualify for the credit.
While this might help bring around lawmakers who share Manchin’s point of view, NBC News reported in Feb. 2022 that the minimum income requirement also risks alienating lawmakers who believe that work requirements exclude the most vulnerable households and therefore run contrary to the entire point of the expanded credit in the first place. Whether anything will come of this proposal in 2023 remains to be seen.
The Credit Remains, but It’s Still at Pre-Pandemic Levels
If you have qualifying children, don’t worry. The failure to renew the expanded child tax credit didn’t eliminate the credit, it just kept it at the less generous version that existed before the American Rescue Plan.
What That Means For Parents
There are several key differences between the expanded child tax credit parents enjoyed in 2021 and the pared-back one that was in effect for 2022 and so far, for 2023. First, it’s worth only $2,000 per qualifying child. In 2021, the souped-up version delivered $3,000 for children ages 6 and up and $3,600 for younger children.
Second, the expanded credit from 2021 was fully refundable, meaning that every single dollar went back to the taxpayer either in the form of a refund or by reducing the amount of tax owed on a dollar-for-dollar basis. In 2022 and 2023, the credit is only partially refundable, meaning that if no tax bill is owed, families can collect a maximum of only $1,500 as part of their refunds. In 2020, only 70% of the credit — or $1,400 — was refundable. However, that number was adjusted to $1,500 for inflation.
Finally, half of the credit wasn’t paid out in 2022 in advance monthly payments the way it was in 2021, and it won’t be in 2023 either.
Children Who Are 17 Do Not Qualify for the Child Tax Credit
Just like in 2020, children who are 17 or older do not qualify for the Child Tax Credit. In 2021, they did, but that’s no longer applicable. A qualifying child had to be under the age of 17 on Dec. 31, 2022, according to the IRS. However, if you have a dependent who is 17 or older, you might be able to claim up to a $500 Credit for Other Dependents.
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Andrew Lisa contributed to the reporting for this article.