Personal Finance
Vance wants to raise the child tax credit to $5,000
The Republican vice presidential candidate, Sen. JD Vance, speaks at a campaign rally at NMC-Wollard Inc. / Wollard International in Eau Claire, Wisconsin, Aug. 7, 2024.
Adam Bettcher | Getty Images
Sen. JD Vance of Ohio, former President Donald Trump‘s GOP running mate, wants to more than double the child tax credit. But the increase could be difficult to enact, policy experts say.
“I’d love to see a child tax credit that’s $5,000 per child. But you, of course, have to work with Congress to see how possible and viable that is,” he said Sunday on CBS’ “Face the Nation.”
Vance’s idea would be a “relatively large expansion” compared to the current benefit worth up to a maximum of $2,000 per child for 2024, according to Garrett Watson, senior policy analyst and modeling manager at the Tax Foundation.
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Without action from Congress, the maximum child tax credit will drop from $2,000 to $1,000 once Trump’s 2017 tax cuts expire after 2025.
During the pandemic, lawmakers temporarily increased the maximum child tax credit from $2,000 to either $3,000 or $3,600, depending on the child’s age. Families received up to half via monthly payments for 2021.
The child poverty rate fell to a historic low of 5.2% in 2021, largely due to the credit’s expansion, according to a Columbia University analysis.
Senate failed to pass a child tax credit expansion
Vance’s comments come less than two weeks after Senate Republicans blocked an expanded child tax credit that passed in the House in January with bipartisan support.
If enacted, the bill would have improved child tax credit access and retroactively boosted the refundable portion of the tax break, which could have triggered refund checks from the IRS.
Democrats held the vote partially in response to Vance, who has positioned himself as a pro-family candidate. But the bill was expected to fail without a consensus from Senate Republicans on credit design.
Vance wasn’t present for the recent Senate vote but described it as a “show vote” during the CBS interview, noting that it wouldn’t have passed even if he were there.
Meanwhile, President Joe Biden and Vice President Kamala Harris will “continue to fight for an expanded child tax credit,” National Economic Advisor Lael Brainard said in a statement.
Trump’s campaign did not immediately respond to CNBC’s request for comment.
How Vance’s $5,000 child tax credit might work
“The child tax credit is obviously a priority of Democrats across the country,” said Richard Auxier, a principal policy associate for the Urban-Brookings Tax Policy Center.
However, Vance’s idea for expansion could be challenging as lawmakers face growing concerns over the federal budget deficit.
Increasing the child tax credit to $5,000 could cost “somewhere in the neighborhood of about $3 trillion” over 10 years, Watson from the Tax Foundation said.
“The immediate question is, of course, how to navigate the cost,” on top of other proposed changes, including extensions for Trump’s expiring tax cuts, he said.
There are also questions about Vance’s proposed child tax credit design, how Vance’s idea might work, including eligibility, work requirements and income phase-outs.
“Many Republicans are very skeptical of moving the child tax credit in a direction that would remove the work requirements of the phase-in,” meaning they only want employed families to claim the credit, Watson said.
Vance’s proposal could revive this debate within conservative and Republican circles as the 2025 deadline approaches, he said.
Simpleimages | Moment | Getty Images
Why your take-home pay could be higher
If you’re starting 2025 with similar wages to 2024, your take-home pay — or compensation after taxes and benefit deductions — could be a little higher, depending on your withholdings, according to Long.
“When all the tax brackets go up, but your salary stays the same, relatively, that puts you on a lower rung of the ladder,” he said.
The federal income tax brackets show how much you owe on each part of your “taxable income,” which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
“Even if you make a little more than last year, you could actually pay less in tax in 2025 compared to 2024,” because the standard deduction also increased, Long said.
For 2025, the standard deduction increases to $30,000 for married couples filing jointly, up from $29,200 in 2024. The tax break is also larger for single filers, who can claim $15,000 in 2025, a bump from $14,600.
‘It ends up nearly balancing out’
Despite tax bracket changes, many Americans won’t feel the pay increase amid elevated prices for certain expenses, said Sheneya Wilson, a CPA and founder of Fola Financial in New York.
“It ends up nearly balancing out,” she said.
While inflation is no longer accelerating, there was an uptick in the cost of groceries, gasoline and new cars in November, according to the Bureau of Labor Statistics.
Whether take-home pay is higher or lower than expected, it’s important to monitor your state and federal income tax withholdings throughout the year, especially during major income or life changes, Wilson said.
Typically, if you withhold too much from your paycheck, you can expect a refund, whereas not withholding enough often results in taxes owed.
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