
On January 31st 2023 the House passed a $78 billion tax bill aimed to expand the current child tax credit.
Taxes can be a bit like a puzzle, but the good news is that sometimes the pieces change to make life a little easier. One recent update that might brighten your tax season is the expanded Child Tax Credit. Let's break it down and see what's changed!
1. More Money for Low Income Families:
The first big change is that low income families are getting more money. Imagine you have two kids. Before, you might get a certain amount for both combined, but now each child gets their own piece of the pie. So, more kids, more money!
Lets use an example:
Think about it like this, imagine you're a single parent raising two children, making $13,000 while working part-time as a teaching assistant. According to the old law, this family gets a $1,575 credit. (This amount is calculated as 15% of the earnings above $2,500, which in this case is $10,500).
Under the new plan, they'd get $1,575 for each child, making the total credit $3,150 and doubling the family's benefit.
2. No More Refund Cap:
Ever heard of a refund cap? It's like saying, "This is the most money you can get back." Well, the new rules are lifting that cap, especially for families with lower incomes. This means more cash back in your pocket.
Under the old law, the most you can get back as a refund is $1,600 per child in 2023 and $1,700 in 2024.
The new plan raises this limit to $1,800 per child in 2023, $1,900 in 2024, and gets rid of it entirely by 2025.
3. Looking Back to Look Forward:
Life can be unpredictable, and sometimes earnings drop for a year. The new expansion has a "lookback" feature. If you earned more in the past, you can use that to calculate your credit. It's like a safety net for families facing tough times.
4. Keeping Up with Inflation:
Prices for things like groceries and clothes go up over time. The Child Tax Credit is getting a little boost to keep up with those changes. That means a bit more money in the future.
5. Helping Families, Step by Step:
The changes are focused on families that might need a bit more support. If you're working hard but find it tough to make ends meet, these updates are designed to give you a helping hand.
Understanding taxes can be like learning a new language, but with these changes, the Child Tax Credit is becoming a bit more family-friendly. Whether you have one child or more, these updates aim to put a little extra money in your pocket. As always, it's a good idea to keep an eye on your mailbox for any official updates and consult a tax professional if you have specific questions. Happy filing!
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