Congress Reaches Deal to Increase Child Tax Credit, Negotiate Tax Treaty with Taiwan
Congressional negotiators from the Senate and House of Representatives announced a deal on Tuesday to increase the child tax credit and negotiate a new bilateral tax treaty with Taiwan, among other matters.
The child tax credit was first enacted in 1997 to provide parents with greater funds to care for children under the age of 17 and was expanded in 2021 under the American Rescue Plan Act, though that expansion expired in 2022 and has not been reauthorized. The new deal — known as the “The Tax Relief for American Families and Workers Act of 2024” — reached between Democrats and Republicans in Congress will change the way the tax credit is calculated, increase the credit every year until 2025 and index it to inflation, according to a technical summary of the plan published by the House Ways and Means Committee.
“Fifteen million kids from low-income families will be better off as a result of this plan,” wrote Democratic Sen. Ron Wyden of Oregon, the chairman of the Senate Finance Committee, who led the negotiation of the deal with House Ways and Means Committee Chairman Jason Smith. “My goal remains to get this passed in time for families and businesses to benefit in this upcoming tax filing season.”
The newly expanded child tax credit will be calculated on a “per-child basis,” by giving taxpayers a credit worth 15% of their income per each child. The deal also raises the overall limit on the credit per child to $1,800 in 2023 from its current $1,600 threshold, after which it will increase every year by $100 until 2025, with adjustments for inflation.
Apart from provisions regarding the child tax credit, the deal grants President Joe Biden the authority to negotiate a bilateral tax treaty with Taiwan. The deal will enable U.S. and Taiwanese taxpayers with financial interests in both jurisdictions to avoid double taxation — such as by reducing tax withheld at the source and excluding certain trade and business income from U.S. taxation — and is modeled on other bilateral tax treaties the United States has signed with other countries.
Under federal law, U.S. citizens are subject to taxation on their income earned worldwide, regardless of their residency in the United States, though in practice the levy only applies to high-income earners, with a basic minimum exemption of $120,000. Because Taiwan is not recognized as a sovereign state by the United States due to the One China Policy, the deal will not be presented to the Senate for advice and consent prior to ratification but is structured as an executive agreement, with Congress granting the president prior authorization for the treaty.
The deal would also include several other measures, such as allowing businesses to deduct their research and development expenditures from their tax burden and change depreciation rules for business interest. It would also permit disaster relief by allowing persons with disaster-related damage over $500 to deduct damages from their taxes, as well as exclude relief payments to victims of the 2023 East Palestine train derailment from being taxed.
Negotiators, furthermore, have touted the deal’s addressing of pandemic relief tax fraud. It would impose a tax of $200,000 or 75% of income derived, whichever is greater, on tax preparation services that promoted the COVID-19 Employee Retention Tax Credit where such promotion resulted in an understatement of tax liability.
“We even provide disaster relief and cut red tape for small businesses, while ending a COVID-era program that’s costing taxpayers billions in fraud,” wrote Smith. “This legislation locks in over $600 billion in proven pro-growth, pro-America tax policies with key provisions that support over 21 million jobs.”
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