Congress expands child tax credit (and offers tax breaks for Main Street businesses) – what does it mean for YOU?

A bipartisan tax treaty announced in Congress today promises extra money for parents. It will also help businesses, both large and on Main Street.

Under the deal, Democrats will get expanded child tax credits and Republicans will implement revived rules to help companies reduce tax bills.

The current limit for the refundable child tax credit is $1,600, will increase to $1,800 for the 2023 tax return due in April, and then increase further in future years. It will benefit 16 million poor children.

Companies can immediately write off the costs for 2023, instead of spreading them over several years.

The combination of two very different types of tax breaks — one benefiting poorer families and the other benefiting corporations — was intended to gain support from lawmakers of both political parties.

The roughly $78 billion in tax cuts would be paid for by more quickly ending a tax break Congress passed during the pandemic that encouraged companies to keep workers on the payroll.

The agreement was announced by Senator Ron Wydenthe Democratic chairman of the Senate Finance Committee, and Representative Jason Smiththe Republican chairman of the House Ways and Means Committee.

FILE – The U.S. Capitol is seen on Jan. 8, 2024, in Washington. The chairmen of Congress’ top tax policy committees announced a bipartisan deal Tuesday, Jan. 16, 2024, to strengthen the child tax credit and revive a variety of tax breaks for businesses, a combination designed to gain support from lawmakers of both political parties. . (AP Photo/Mariam Zuhaib, file)

The Internal Revenue Service will begin accepting and processing tax returns on January 29, so lawmakers are trying to pass the bill as quickly as possible.

Lawmakers have been negotiating for months on a tax package that would address a range of priorities before lawmakers turn their attention to the election season.

Wyden said his goal is to get approval for the measure in time so that businesses and families can benefit during the upcoming filing season.

That deadline will be tight as lawmakers rush to finalize a series of bills, and they are taking into account a bill focused on helping both Israel and Ukraine and stopping the flow of migrants entering the country at the US-Mexico border.

One option would be for leaders in the House and Senate to tie the measure to this one of those bills with the highest priority.

DEMOCRATS HELP FOR CHILDREN

Democratic negotiators were focused on boosting the child tax credit.

The current limit for the refundable child tax credit is $1,600.

The bill would increase the maximum refundable child tax credit incrementally to $1,800 for 2023 tax returns, $1,900 for the following year and $2,000 for 2025 tax returns.

“Given today’s miserable political climate, having this opportunity to advance pro-family policies that help so many children move forward is a big deal.” Wyden said in a statement announcing the deal.

The Center on Budget and Policy Priorities, a liberal think tank and advocacy group, predicted that about 16 million children in low-income families would benefit from the expansion of the child tax credit.

REPUBLICAN BOOST FOR BUSINESS

Republicans focused on tax breaks for companies that they said would help the economy grow.

Smith said the agreement “strengthens Main Street businesses, increases our competitiveness with China and creates jobs.”

The three tax breaks Republicans want will help companies lower their tax bills.

One of these, for example, would allow them to immediately spend all research and development expenditure.

Another, called “bonus depreciation,” meant companies could deduct the entire cost of new equipment, such as a computer or truck, as soon as they purchased it. Previously, they had to claw it back over several years as the equipment depreciated in value.

Senator Ron Wyden (D-Or) is on the other side, negotiating a Democratic demand for higher tax credits for people with children

Congressman Jason Smith (R-Mo) is negotiating a $100 billion bill that could see Republican demands for corporate tax cuts

HOW IS IT PAID?

Some lawmakers have urged that any tax extensions be paid for so as not to widen projected deficits. The authors of the agreement seek to do that by hastening the elimination of the employee retention credit.

Under current legislation, companies had until April 15 next year to claim the credit. The bill would bar further claims after January 31 this year.

It would also increase penalties for tax preparers who fail to exercise due diligence when filing those COVID-19-related claims.

The tax credit is intended to make it easier for businesses to keep their workers on payroll at a time when COVID-19 has kept people at home and away from stores, hotels and restaurants.

The IRS announced in September a moratorium on processing new claims until at least the end of the year, following concerns that a significant portion of new claims from the aging program would not qualify.