How the enhanced CTC could impact tax season

March 11, 2024 10:00 AM

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Tax season is well underway, but the fate of the $78 billion Tax Relief for American Families and Workers Act, including the enhanced Child Tax Credit, is now in the hands of the Senate. It is unclear when the legislation will cross the finish line, and what impact it may have on tax filing this year.

The version of the Child Tax Credit that was passed by the House in January would make the credit more generous, but not as generous as the version included in the American Rescue Plan Act of 2021, which was fully refundable and temporarily provided monthly checks to lower-income families to help alleviate poverty.

Under current law, the maximum refundable credit is limited to $1,600 per child for 2023. The bill increases the maximum refundable amount per child to $1,800 in tax year 2023, $1,900 in tax year 2024, and $2,000 in tax year 2025.

Advocacy groups such as the National Parents Union said the legislation, while not perfect, would still be a help. "The House of Representatives passed a bipartisan tax package with American families in mind," said Ariel Taylor Smith, senior director of the NPU Center for Policy & Action, in a statement. "The inclusion of an expanded Child Tax Credit in the Tax Relief for American Families and Workers Act of 2024 will provide relief for millions of hard-working families across the country."

All eyes are fixed now on the Senate. "While there is no guarantee yet that it will become law, companies are holding their breath," said Rema Serafi, vice chair of tax at KPMG LLP, in a statement. "If passed, the bill would be retroactive two-plus years and would likely result in many having to amend tax returns or quickly determine how to account for the bill."

Senate Finance Committee members on both sides of the aisle, including ranking member Sen. Mike Crapo, R-Idaho, and Chairman Ron Wyden, D-Oregon, say they are committed to working together to find the best path forward that gets the bill passed quickly and signed into law.

In the meantime, the IRS says it is primed to implement any late-breaking changes to the Child Tax Credit in a timely manner. "The IRS has confirmed that it will be able to process changes to people's tax refunds quickly, in approximately six weeks," said Wyden in a statement.

"Taxpayers who send their returns to the IRS early in filing season will not need to file amended returns — the IRS will send them their additional refund automatically," he continued. "That's due to improvements to its back-end systems funded by The Inflation Reduction Act. That's great news because this is a rare opportunity in a deeply divided Congress to help a lot of families and kids who are struggling to get by, and Democrats don't want those kids to have to wait any longer."

Catch up on all our recent coverage of the Child Tax Credit.

CTC refunds get ‘top priority’ from IRS

While the expanded Child Tax Credit is stalled in the Senate, IRS Commissioner Danny Werfel has made it "a top priority" to implement changes and send out tax refunds as expeditiously as possible.

In a hearing in February before the House Ways and Means Committee, Werfel was asked by Chairman Jason Smith, R-Missouri, about how quickly the IRS could make adjustments if the bill ultimately passes. The extent of the enhanced Child Tax Credit has already been scaled back from the version included in the American Rescue Plan Act of 2021 to avoid making it fully refundable or provide monthly payments, but some senators would like to see further changes.

"We gave you a range of six to 12 weeks required for implementation from the point of enactment," Werfel responded. "The reason we give a range is because we need to see the final language. But I'm committed to work diligently to make sure we're closer to the six-week end of that range than the 12-week."

Read more:

IRS commits to making Child Tax Credit changes quickly

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Senate concerns over CTC delay tax relief bill

The Tax Relief for American Families and Workers Act was passed by the House at the end of January, but the Senate Finance Committee has not yet done a markup on the bill, reportedly amid resistance from Republicans like ranking member Sen. Mike Crapo, R-Idaho, due to concerns related to the prior year's earnings provision of the CTC.

AccountingToday.com editor-in-chief Michael Cohn reached out to Crapo's office as well as Senate Finance Committee Chairman Ron Wyden, D-Oregon, and the former chair of the Senate Finance Committee, Chuck Grassley, R-Iowa, for comment.

"I look forward to working with my colleagues to vet the legislation, address concerns, and make the necessary changes to build support," Crapo said in a statement he issued after the bill passed the House. Wyden's office said he is continuing to have discussions with Senate Majority Leader Chuck Schumer, D-New York, and with his colleagues on finding the best path forward, while a spokesperson for Grassley said that he "looks forward to providing legislative input when the Senate Finance Committee holds a markup."

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Tax extenders bill stalled

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Legislation moves forward on improved CTC

After a bipartisan House vote pushed the latest tax bill to the senate in January, House Speaker Mike Johnson, R-Louisiana, promised Republicans in blue states a vote in February on a separate measure to raise the $10,000 cap on state and local tax deductions from the Tax Cuts and Jobs Act.

The Tax Relief for American Families and Workers Act revives a number of tax breaks, including the enhanced Child Tax Credit. Democrats had hoped for a more robust version of this like the one included in the American Rescue Plan Act of 2021, but it promises to help low-income families dealing with inflation.

"This package remains flawed in many ways," said Rep. Suzan DelBene, D-Washington, in a statement. "However, I am not one to let the perfect be the enemy of the good. This package will provide greater relief to families, incentives to build more affordable housing, and reduce double taxation on American and Taiwanese businesses and workers."

Read more:

House passes bill expanding CTC and business breaks

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IRS on alert for potential late changes to CTC

Last-minute tax law changes in a deal working its way through Congress to revive tax breaks like a more generous Child Tax Credit could put pressure on the IRS and tax professionals as the tax season gets into full swing.

Uncertainty lingers over the tax extenders bill that was introduced in January. The Senate may make some changes if there's a markup in the Senate Finance Committee, or the bill could get fast-tracked so the changes happen early in the tax season. But with new rifts opening up in Congress, it may not get passed until mid-season, if at all.

Dave Kautter, a former acting commissioner of the IRS and assistant secretary of the Treasury for tax policy, believes the IRS will be up to the job. "They've got a great attitude," Kautter told AccountingToday.com's Michael Cohn. "It's hard to believe when you're on the outside, but inside the IRS is a very positive, collaborative, can-do culture."

Read more:

IRS and tax pros gird for filing season amid congressional uncertainty

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Expectation of CTC relief hovers over tax season

The IRS and tax professionals are anxiously waiting to see if the bipartisan tax extenders package will pass the Senate.

"Congressional leaders are really focused on trying to both achieve some extenders on the business side and also achieve some relief on the Child Tax Credit side," Ken Kuykendall, tax leader and tax consulting leader at PwC US, told Accounting Today. "The interesting spot to go through here is where it goes with the Senate right now."

Many tax clients may already be counting on the extenders bill getting passed. "I get the sense from just looking at clients that they were expecting or hoping for some of these extenders provisions to get extended or put in place," said Kuykendall. "There will be some challenges, but I think that in general, people are prepared for the filing obligations that are coming with it. The relief that's coming here is welcome enough to make up for any sort of increased filing burdens that are out there."

Read more:

Tax extenders bill throws new uncertainty into tax season