Proposed Changes to the Child Tax Credit and Bonus Depreciation for 2023
The House Ways and Means Committee and the Senate Finance Committee announced, yesterday, a bipartisan agreement on potential tax law changes for the 2023 tax year. Amidst widespread speculation and misinformation, particularly on social media, it’s crucial to disseminate accurate information. This article aims to clarify the proposed changes to the Child Tax Credit and bonus depreciation rules, two areas that hold significant implications for taxpayers and businesses alike. If you have questions about how the proposed changes may affect you, feel free to contact me.
Child Tax Credit: Clarifying the Proposed Adjustments
The current Child Tax Credit provides a $2,000 tax credit per qualifying child on a taxpayer’s return. However, not every taxpayer is eligible to receive the full amount. For those with lower incomes, the actual credit received may be less. For instance, a taxpayer with zero tax liability is eligible only for the “refundable” portion of the credit, currently capped at $1,600, not the entire $2,000.
Contrary to some assertions on social media, the proposed legislation does not intend to revert the credit to the $3,000 level seen during the COVID-19 pandemic. Instead, for 2023, the proposal seeks to increase the refundable portion from $1,600 to $1,800. Additionally, starting in 2024, the maximum $2,000 credit would be indexed to inflation, potentially resulting in a modest annual increase. It’s important to note that for 2023, the maximum credit remains at $2,000 under the proposed change.
Bonus Depreciation: A Potential Boost for Businesses
Since the implementation of the Tax Cuts and Jobs Act (TCJA) in 2017, businesses have benefited from the option of taking 100% bonus depreciation on business assets purchased within the tax year. Originally, this provision was set to phase out gradually between 2023 and 2026, dropping by 20% each year.
Under the proposed changes, the bonus depreciation rate would be restored to 100% for tax years 2023 through 2025. This extension is a significant boost for businesses, especially small enterprises, allowing for increased spending and enhanced productive capabilities.
In Summary: A Reality Check on Tax Credit Changes
While the Child Tax Credit is a widely recognized and utilized benefit for individual taxpayers, the proposed changes for 2023 are not as substantial as some sources might suggest. The modest increase in the refundable portion and the future indexing to inflation are the key adjustments. Conversely, the proposal to extend the 100% bonus depreciation is a more notable change, offering substantial benefits to businesses over the next few years.
Conclusion
As we delve into the details of these proposed tax changes, it’s crucial to remember that tax legislation is inherently a dynamic and evolving process. As the proposal makes its way through the legislative journey, various amendments and revisions are not just possible but quite common.
In the landscape of tax law, where speculation and misinformation can quickly spread, it’s essential to rely on accurate and detailed information. While the changes to the Child Tax Credit may not be as dramatic as some have claimed, the potential extension of the 100% bonus depreciation is a development that merits attention, particularly for business owners. Stay informed and consult with a tax professional to understand how these changes may impact your personal or business tax situation.