Some taxpayers will see a bonus from the IRS this year
It almost seems too good to be true, but Congress is poised to deliver an unexpected windfall to families across the country.
Taxpayers who qualify for the child tax credit stand to receive an additional $200 per child from the IRS thanks to a new law that is likely to pass Congress later this year.
A pending child tax credit bill that passed the U.S. House and reached the Senate will retroactively increase the refundable portion of the child tax credit for 2023 from the current $1,600 to $1,800.
But even if you’ve already filed taxes for 2023, don’t worry.
Internal Revenue Service Commissioner Daniel Werfel assured members of Congress on Feb. 15 that taxpayer accounts will be adjusted accordingly without the need for an amended return.
“Taxpayers should not wait for this legislation to file their returns,” he told the House Ways and Means Committee. “We will take care of getting any additional refunds to taxpayers who have already filed.”
The proposed changes to the child tax credit cleared the House on Jan. 31 with a strong bipartisan vote of 357-70. While the timing is unclear, the Senate is expected to approve tax bill HR 7024 later this year, and then it will be signed into law.
The child tax credit is a federal support program that can lower the tax bill of parents and legal guardians of children 17 and under by up to $2,000 per child.
However, the child tax credit is only partially refundable, which means that for a part of the credit, you can get a refund even if you don’t owe any tax. The other part is nonrefundable, so taxpayers can use that part of the tax credit against taxes owed.
The maximum refundable portion of the credit under the current law is $1,600. However, under the proposed legislation, the maximum refundable portion for 2023 will increase to $1,800; in 2024 it will increase to $1,900; and in 2025 it increases to $2,000.
Another interesting provision in the bill is that it adds an alternative income test for the credit calculations so that more low income taxpayers can qualify for the maximum refundable child tax credit.
The proposed legislation will
allow taxpayers to look back to a prior year to determine which year’s income will provide the best benefit when calculating their refundable portion of the child tax credit.
“The more income that you have as a low-income taxpayer, that increases the amount of the refundable credit available to you. So, if you have little to no income, the refundable credit is smaller,” said Lucas Rihely, a partner at H2R CPA accounting firm in Green Tree.
“If there’s a year when someone’s income was higher, the law will allow them to look back to that prior year and use that to calculate the credit,” Mr. Rihely said.
He said the change will benefit parents and guardians who experience a job loss or need to cut their hours — for example, to help care for someone having a health crisis — causing their income to decrease.
The child tax credit is a federal program that supports Americans raising children.
The credit doesn’t just apply to biological children, either. It includes stepchildren, foster children, adopted children, siblings, step-siblings, and half-brothers or half-sisters, according to the IRS website.
To be eligible for the tax break, individual taxpayers must have a modified adjusted gross income, or MAGI, of $200,000 or less, or more than $400,000 if filing jointly.
If a taxpayer’s MAGI is higher than $200,000, the amount of the child tax credit decreases by $50 for every $1,000 above the limit. For example, a MAGI of $220,000 as an individual would allow the taxpayer to claim $1,000 for each eligible child.
The child tax credit is phased out completely at $240,000 for individuals and at $480,000 for married couples filing jointly.