Last week the House Ways and Means Committee released and then worked on perhaps the biggest parts of reconciliation and the Biden Administration’s “Build Back Better” agenda when they published the tax provisions. The tax pieces can be divided into two broad parts, tax deductions and incentives and tax increases to pay for the tax cuts. The tax provisions deal with a number of incentives, including efforts to address environment and global warming as well as strategies to strengthen housing and the workforce.
The most significant tax piece is an extension of the Child Tax Credit (CTC), a CWLA priority. The extension of the CTC would run into 2025, with some supporters assuming that it would be hard not to extend a popular CTC, although advocates would much prefer to make it permanent now—something that becomes a challenge due to budget limitations and spending restrictions. The House version makes the refundable (that guarantees payments for poor families) permanent, which means that a future Congress would have to repeal that feature if they didn’t like it. The CTC would continue at $300 a month for a child under 6 and $250 a month for a child 6 through 17.
The legislation extends the CTC to children of immigrants by allowing immigrants who file income taxes to benefit without requiring their child to have a Social Security number. It also expands benefits to Puerto Rico, allowing advance payment to Puerto Rican families and allowing those families to access the IRS portal to apply for the credit. The legislation provides $9 billion through 2026 to help the IRS implement the new CTC.
Other critical components of the House Ways and Means reconciliation efforts:
The Earned Income Tax Credit (EITC) for adults without children is made permanent. This will help youth exiting foster care and homeless youth. The minimum age to claim the childless EITC is reduced from 25 to 19 (except for certain full-time students), and the upper age limit for the childless EITC is eliminated. The provision contains special rules regarding the credit for former foster youth and homeless youth. It extends the EITC for youth exiting foster care even if they are still in college. The childless EITC amount is increased with the maximum credit reached at $9,820 in earned income and the phaseout or gradual decrease beginning at $11,610. The maximum credit amount increases from $543 to $1,502. It is also indexed for inflation.
The reconciliation also includes expanding the Child and Dependent Care Tax Credit (CDCTC) and making permanent modifications to the credit made in the 2021 in the American Rescue Plan. Those modifications make the credit fully refundable and increase the maximum credit rate to 50 percent. The phaseout (when the benefit starts to go down) begins at $125,000 in income instead of $15,000. The amount of child and dependent care expenses eligible for the credit is increased to $8,000 for one qualifying individual and $16,000 for two or more qualifying individuals (such that the maximum credits are $4,000 and $8,000) with benefits indexed for inflation. There is also an employer payroll tax credit for child care against employer-side costs. This and other provisions would help support the child care workforce.
There is a credit for caregiver expenses by providing a non-refundable credit, up to $4,000, equal to 50 percent of the qualified expenses paid or incurred by a qualified care recipient during the taxable year through 2025. The amount of the credit is reduced by 1 percentage point for every $2,500, by which the taxpayer’s adjusted gross income exceeds $75,000. A qualified care recipient is a spouse or other individual who has been certified by a Medicare, Medicaid, or CHIP-enrolled provider as having long-term care needs expected to last for at least 180 consecutive days, and who lives in a personal residence (not an institutional care facility).
It maintains some of the tax provisions that have allowed expanded access to health insurance through the ACA during this pandemic. It makes permanent the American Rescue Plan ACA provisions that increase generosity for individuals eligible for assistance with household incomes below 400 percent of the federal poverty level (FPL) and provides credits for taxpayers with household incomes above 400 percent of the FPL.
The House has completed one phase of the reconciliation by having all committee carry out their assignments. In some instances, committees have engaged the other house (Senate) in their crafting of legislation, but in some committees, that has not been the case. This is not the end, however. The parts must be assembled, and the goal is that the final package will be adjusted to gain passage in the House and have 50 votes in the Senate.