Congress is working on a new child tax credit that is likely to become law soon. However, with tax season underway, many people are confused about whether they should file their return now or wait until the new expanded child tax credit is approved. People are mainly holding off their taxes to benefit from the new child tax credit in case it is approved for 2023 taxes.
Should you file your return now?
When lawmakers introduced the proposal for the new expanded child tax credit, they expected it to become law before the IRS started accepting returns. The IRS started accepting returns on January 29, but the child tax credit bill has not gotten enough support so far.
This is what is putting taxpayers in a dilemma. Generally, taxpayers file their returns early to ensure they get the refunds sooner. However, now many people are holding off their return in the hope that lawmakers will approve the credit soon to allow them to benefit from it this tax season.
The bill was recently approved by the House of Representatives and is now waiting for a nod in the Senate. Currently, it isn’t clear when the Senate will take up the bill. Since there is no fixed date yet from the Senate, taxpayers are advised not to wait for the credit and file their taxes as soon as possible.
Going forward, if the new expanded child tax credit is signed into law, the IRS will likely send the applicable new child tax credit amount automatically, or the agency may ask taxpayers to file an amended return to claim the new credit amount.
Already, the IRS has cleared that it is prepared for any new credit and will start adjusting returns to reflect the new expanded child tax credit and send out the extra refund amount within six to 12 weeks. Even the agency doesn’t want taxpayers to wait for the legislation to file their returns.
“Taxpayers should not wait for this legislation to file their returns. We will take care of getting any additional refunds to taxpayers who have already filed,” IRS Commissioner Danny Werfel said at a House Ways and Means Committee hearing recently, according to Morningstar.
New expanded child tax credit: how is it better?
If the new child tax credit is approved, it will expand the credit by $33 billion over three years, including 2024. The new expanded child tax credit will not just cover more lower-income families but will give a higher credit to many families as well.
Currently, taxpayers with income under $200,000 (or $400,000 for couples) qualify for a $2000 child tax credit if the child is 16 or younger. However, only $1,600 of the credit is refundable. This means that a taxpayer will get $1,600 even if they don’t owe the government anything.
The new bill, however, changes the maximum refundable amount to $1,800, with an annual increase of $100 until 2025. So, if the new bill is approved, the refundable amount will be $2,000 in 2025. Additionally, the new expanded child tax credit will tie the credit amount to inflation as well.
