How Would the Child Credit Be Calculated for 2023 Under H.R. 7024?

How Would the Child Credit Be Calculated for 2023 Under H.R. 7024?

INSIGHTi

How Would the Child Credit Be Calculated
for 2023 Under H.R. 7024?
Updated February 1, 2024
H.R. 7024, which passed the House on January 31 by a vote of 357-70, includes several provisions that
would expand the child tax credit for low-income families by increasing the refundable portion of the
credit. The refundable portion of the child credit is sometimes called the additional child tax credit or
ACTC.
These changes include the following:
1. The ACTC would be calculated per child: After the ACTC amount is calculated under
current law (15% of earned income above $2,500), it would then be multiplied by the
number of children, effectively phasing in the credit faster for families with more
children (i.e., a 30% phase-in rate for two children), capped by the maximum ACTC (see
below).
2. The maximum amount of the ACTC would increase: The ACTC maximum would rise
from $1,600 to $1,800 per child in 2023 and from $1,700 to $1,900 per child in 2024 and
equal $2,000 (adjusted for inflation) in 2025.
3. Taxpayers could use prior-year earned income to calculate the ACTC: Taxpayers
could calculate the ACTC using their prior-year earned income if their current-year
earned income was less than their prior-year earned income. This would apply for 2024
and 2025. Hence, in 2024, a taxpayer could elect to use their earned income for 2023 to
calculate their ACTC if that amount was more than their 2024 earned income (under
current law, they could only use their 2024 earned income for this calculation).
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To illustrate the potential impact of these changes, Tables 1-3 provide examples of how the credit would
be calculated under current law and H.R. 7024 for hypothetical low-income taxpayers for 2023 (i.e., on
2023 tax returns). Broadly, these illustrate that the lowest-income taxpayers with one child and moderate-
income families will likely see no additional benefit for 2023 (Table 2 and Table 3), and that low-income
families with two or more children and sufficient earnings are likely to receive a larger credit for 2023
(Table 1).

Table 1. Example 1 of Child Credit Amounts for 2023 under H.R. 7024
Calculation Step
Current Law
H.R. 7024
Married couple (joint filers) with $20,000 of earned income and two children
1. Calculate the maximum child credit
$4,000=$2,000 x 2 children
Same as current law
per taxpayer. This is the overall child
credit cap.

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Calculation Step
Current Law
H.R. 7024
2. Calculate the maximum amount of
$3,200=$1,600 x 2 children
$3,600=$1,800 x 2 children
the child credit that can be received by
low-income taxpayers who owe $0 in
taxes. This is the additional child tax
credit (ACTC) cap.

3. Calculate the ACTC under the
$2,625=15% of earned income greater
$5,250=15% of earned income greater
earned income formula.
than $2,500
than $2,500 multiplied by the number
of children (i.e., multiplied by 2)
4. Pick the lesser of the amounts
$2,625 because $2,625 < $3,200
$3,600 because $3,600 < $5,250
calculated in steps 2 and 3.

5. If the taxpayer has any income tax
Not applicable. $0 in income tax
Same as current law
liability, increase the total credit
liability so all of the child credit is
amount by that liability until it reaches
received as the ACTC.
the cap in step 1.

If income tax liability + ACTC exceeds
the cap in step 1, the credit wil equal
the max credit in step 1, with the
refundable portion of the credit
(ACTC) recalculated as the total credit
minus income tax liability.
6. Final credit amount
$2,625 (all as the ACTC)
$3,600 (all as the ACTC)

Source: IRC Section 24 and H.R. 7024 (January 23).
Notes: All income is assumed to be earned income and earned income is assumed to equal adjusted gross income (i.e.,
no above-the-line deductions). The taxpayer is assumed to claim the standard deduction and no other nonrefundable
credits aside from the child tax credit. Taxpayers and children are assumed to meet all eligibility requirements.
Table 2. Example 2 of Child Credit Amounts for 2023 under H.R. 7024
Calculation Step
Current Law
H.R. 7024
Single parent (head of household filer) with $10,000 of earned income and one child
1. Calculate the maximum child credit
$2,000=$2,000 x 1 child
Same as current law
per taxpayer. This is the overall child
credit cap.
2. Calculate the maximum amount of
$1,600=$1,600 x 1 child
$1,800=$1,800 x 1 child
the child credit that can be received by
low-income taxpayers who owe $0 in
taxes. This is the additional child tax
credit (ACTC) cap.
3. Calculate the ACTC under the
$1,125=15% of earned income greater
$1,125=15% of earned income greater
earned income formula
than $2,500
than $2,500 multiplied by the number
of children (i.e., multiplied by 1)

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Calculation Step
Current Law
H.R. 7024
4. Pick the lesser of the amounts
$1,125 because $1,125 < $1,600
$1,125 because $1,125 < $1,800
calculated in steps 2 and 3
5. If the taxpayer has any income tax
Not applicable. $0 in income tax
Same as current law
liability, increase the total credit
liability so all of the child credit is
amount by that liability until it reaches
received as the ACTC.
the cap in step 1.

If income tax liability + ACTC exceeds
the cap in step 1, the credit wil equal
the max credit in step 1, with the
refundable portion of the credit
(ACTC) recalculated as the total credit
minus income tax liability.
6. Final credit amount
$1,125 (all as the ACTC)
$1,125 (all as the ACTC)
Source: IRC Section 24 and H.R. 7024 (January 23).
Notes: All income is assumed to be earned income and earned income is assumed to equal adjusted gross income (i.e.,
no above-the-line deductions). The taxpayer is assumed to claim the standard deduction and no other nonrefundable
credits aside from the child tax credit. Taxpayers and children are assumed to meet all eligibility requirements.
Table 3. Example 3 of Child Credit Amounts for 2023 under H.R. 7024
Calculation Step
Current Law
H.R. 7024
Married couple (married filing jointly) with $40,000 of earned income and three children
1. Calculate the maximum child credit
$6,000=$2,000 x 3 children
Same as current law
per taxpayer. This is the overall child
credit cap.

2. Calculate the maximum amount of
$4,800=$1,600 x 3 children
$5,400=$1,800 x 3 children
the child credit that can be received by
low-income taxpayers who owe $0 in
taxes. This is the additional child tax
credit (ACTC) cap.

3. Calculate the ACTC under the
$5,625=15% of earned income greater
$16,875=15% of earned income
earned income formula
than $2,500
greater than $2,500 multiplied by the
number of children (i.e., multiplied by
3)

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4. Pick the lesser of the amounts
$4,800 because $4,800 < $5,625
$5,400 because $5,400 < $16,875
calculated in steps 2 and 3

5. If the taxpayer has any income tax
$1,230 in income tax liability
Same as current law
liability, increase the total credit
(calculated by CRS based on income
amount by that liability until it reaches
and other characteristics of example
the cap in step 1.
tax unit).

If income tax liability + ACTC exceeds
Hence, the taxpayer wil receive a
the cap in step 1, the credit wil equal
$6,000 credit of which $1,230 will
the max credit in step 1, with the
offset income taxes
refundable portion of the credit
(nonrefundable portion) and
(ACTC) recalculated as the total credit $4,770 will be received as the
minus income tax liability.
ACTC (refundable portion).

6. Final credit amount
$6,000 ($1,230 as nonrefundable
$6,000 ($1,230 as nonrefundable
portion, $4,770 as ACTC)
portion, $4,770 as ACTC)
Source: IRC Section 24 and H.R. 7024 (January 23).
Notes: All income is assumed to be earned income and earned income is assumed to equal adjusted gross income (i.e.,
no above-the-line deductions). The taxpayer is assumed to claim the standard deduction and no other nonrefundable
credits aside from the child tax credit. Taxpayers and children are assumed to meet all eligibility requirements.

Author Information

Margot L. Crandall-Hollick

Specialist in Public Finance

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IN12306 · VERSION 2 · UPDATED