Democrats on the House Ways and Means Committee introduced legislation Tuesday to extend the Earned Income Tax Credit, the Child Tax Credit and the American Opportunity Tax Credit for tuition and related expenses.
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The extension of the three credits will also be included in the Democratic alternative to the Republican tax cut proposal to be voted on next week, which was also introduced Tuesday (see House Republicans Introduce Bush Tax Cuts Extension Bill). That Democratic proposal would extend the Bush tax cuts for households with incomes below $250,000.
Human Resources Subcommittee Ranking Member Lloyd Doggett, D-Texas, is the lead sponsor of the extension of the AOTC, while Select Revenues Subcommittee Ranking Member Richard Neal, D-Mass., is the lead sponsor of the extension of the EITC and CTC.
"At a time when nearly one out of six Americans live in poverty, it's absolutely critical that we extend the Earned Income Tax Credit (EITC), Child Tax Credit and the American Opportunity Tax Credit that will help lift millions out of poverty and make college more affordable for students,” said former Ways and Means chairman Charles Rangel, D-N.Y., in a statement. “In particular, the EITC has become our nation’s largest and most important anti-poverty program, offering an average of $1,700 per year to each of 20 million low-income working families. As the largest federal work support program in the country—$37 billion in tax relief annually—the EITC moves over 2.5 million children above the poverty line each year, more than any other federal program. I was proud to fight for the expansion of this program before, and I will fight for it again this time."
Generally, taxpayers with income below certain threshold amounts may claim the Child Tax Credit to reduce federal income tax for each qualifying child under the age of 17. The Bush tax cuts increased the credit from $500 to $1,000 and expanded refundability. The amount that may be claimed as a refund was 15 percent of earnings above $10,000. The American Recovery and Reinvestment Act of 2009 provided that earnings above $3,000 would count towards refundability. The proposal would extend the current Child Tax Credit for an additional year, through 2013.
Under current law, working families with two or more children currently qualify for an Earned Income Tax Credit equal to 40 percent of the family’s first $12,570 of earned income. The American Recovery and Reinvestment Act increased the earned income tax credit to 45 percent for families with three or more children and increased the beginning point of the phase-out range for all married couples filing a joint return (regardless of the number of children) to lessen the marriage penalty. This proposal extends for an additional year, through 2013, the American Recovery and Reinvestment Act provisions that increased the credit for families with three or more children and increased the phase-out range for all married couples filing a joint return.
Created under the American Recovery and Reinvestment Act, the American Opportunity Tax Credit is available for up to $2,500 of the cost of tuition and related expenses paid during the taxable year. Under this tax credit, taxpayers receive a tax credit based on 100 percent of the first $2,000 of tuition and related expenses (including course materials) paid during the taxable year and 25 percent of the next $2,000 of tuition and related expenses paid during the taxable year. Forty percent of the credit is refundable. This tax credit is subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly). This proposal extends the American Opportunity Tax Credit for an additional year, through 2013.
“While rightly concerned with the federal deficit, we must also remain concerned with the ‘opportunity deficit,’ when students cannot develop their God-given potential to the fullest extent,” Doggett said in a statement. “Extending the ‘More Education’ tax cut will continue to close this gap, allowing more students to achieve all the education for which they are willing to work.”