The Tax Cuts and Jobs Act of 2017 (TCJA) temporarily doubled the child tax credit, increasing it from $1,000 to $2,000 per child under 17. This change widened eligibility by raising the income phaseouts, allowing more families to claim the credit. However, without Congressional intervention, this enhanced benefit is set to revert to its pre-TCJA level after 2025, potentially affecting millions of American families.
The TCJA aimed to provide relief to taxpayers, yet it capped the refundable portion of the child tax credit, limiting the benefits for lower-income families who do not owe taxes. Consequently, an estimated 17 million children with lower-income parents are unlikely to receive the full value of the child tax credit by 2025.
"The child tax credit is upside down because it gives more benefits to higher-income people than lower-income people," said Chuck Marr, vice president for federal tax policy at the Center on Budget and Policy Priorities.
Despite bipartisan support for extending the expiring child tax credit, political hurdles remain. The House passed a bipartisan tax package in January 2024 that included expanding the child tax credit. However, Senate Republicans blocked legislation in August, citing concerns over policy specifics, while expressing interest in future discussions.
The U.S. Department of the Treasury reported a significant fiscal deficit of $710.9 billion for the first quarter of fiscal year 2025, nearly 40% higher than the same period in the previous year. This economic backdrop adds pressure on lawmakers as they navigate President-elect Donald Trump's agenda and other tax provisions in limbo.
"The last thing families need is to see Washington slashing their child tax credit in half," emphasized House Ways and Means Committee Chairman Jason Smith, R-Mo.
The proposed changes aimed to increase accessibility and retroactively enhance the refundable portion for 2023, potentially triggering refund checks. Without legislative action, the higher benefit could expire post-2025, impacting returns filed in 2027.