Families are once again waiting to learn if Congress will increase the Child Tax Credit (CTC) as another year draws to an end. Approximately 19 million of the lowest-income children receive less than the limit of $2,000 per kid because their households earn too little, even though the CTC is an important income assistance initiative for families with children. The American Rescue Plan Act of 2021 eliminated the earnings threshold for families to get the maximum benefit by making the credit entirely refundable for a single year.
Child Tax Credit; Source- CNET
During the brief period of growth, poverty, and misery significantly decreased. Even while Republicans are adamantly against full refundability being reinstated, there is still an opportunity for a bipartisan solution that benefits the lowest-income households. Families must make at least $2,500 annually to receive any credit. After that, benefits begin to accrue at a rate of fifteen percent for every dollar of earnings above that threshold. Refunds of up to $1,600 (increasing from $1,400 in 2018 to 2021 and $1,500 in 2022) may be obtained from the credit in 2023. Every year, that cap is adjusted for inflation.
How To Increase Child Tax Credit
Remove the earned income cap to allow families to receive the credit for their very first dollar of income. 35% of households with children in the lowest income bracket would benefit by an average of $320 if the first $2,500 in earnings were counted towards calculating the credit. The federal government would pay an estimated $1.5 billion for this in 2023. The maximum amount of credit that can be refunded should be repealed. Even some middle-class families won’t make enough money to obtain the whole benefit until after inflation adjustments make it possible to claim a refund of the entire $2,000 credit. For married individuals with one child to qualify for the full $2,000 benefit in 2023, their wages must come close to $32,000.
Greater Income Level For Full Child Tax Credit
Even more money would be required for married individuals with two kids. Costing $1.9 billion in 2023, this alternative would help 28% of families in the least income quintile by an average of 320 dollars per family. Compared to the other options, a greater portion of benefits would be distributed to families in the subsequent income quintile. Greater income levels are required for larger families to receive the full CTC because the credit factors in at a rate of 15 %. If a family chooses this option, the credit will be phased in at a rate of 15% per kid, or 30 % for a family with two kids.
This would help households in the lowest income quintile by an average of $270, or 23 percent of them. Our estimate for the cost of this is $3.4 billion in 2023. As they cross the minimal wage barrier, families with children are no longer eligible for a minimum credit under current law. This reform approach would guarantee that qualified low-income families receive a minimum refundable credit by gradually phasing in the refundable element of the CTC at $1,000 per child. According to existing legislation, the remaining refundable component of the credit would phase in. 35% of families with kids in the lowest quintile of income would gain from this, with an average credit of roughly $1,100. TPC projects that this would cost $5.2 billion in 2023.
