Yahoo Finance Latest Proposed Child Tax Credit Payments Would Actually Benefit Wealthy Families More — Could It Pass?
Wisconsin state lawmakers are considering legislation that would expand child care tax credits for qualifying families, although the proposal has already drawn flak from critics who say it mostly benefits wealthy households. Whether it has any chance of getting signed into law is a long shot, according to media reports.
Stimulus Update: Child Tax Credit Expansion Still ‘Achievable’ by End of 2023 — Where Issue
Learn: What To Do If You Owe Back Taxes to the IRS
The tax credit was included in a larger bill passed this week by the Republican-controlled Wisconsin Senate, the AP reported. The bill includes a $2 billion income tax cut as a part of package that also targets child care costs. It was scheduled to head to the Wisconsin State Assembly, the lower chamber of the legislature where Republicans also hold a majority.
Explore: Pros and Cons of Living in a State With No Income Tax
Under the Senate proposal, the maximum benefit a qualifying Wisconsin family would receive from the expanded state child care tax credit is $4,000 for two or more children, the Wisconsin Examiner reported.
An Examiner analysis of the proposal found that to qualify for the full $4,000 credit, a family would have to have two children in child care costing $20,000 a year and a taxable annual income of $85,000. A family spending $10,000 a year for child care for one child must have an income of nearly $50,000, according to the Examiner, which called the benefit a “better deal for families with higher incomes.”
The median household income in Wisconsin was $73,330 a year as of 2022, according to Federal Reserve data.
In its analysis, the Wisconsin Examiner used the example of two “nearly identical” taxpaying families. Each pays $20,000 a year for two children in child care, qualifying for the maximum tax credit. Because both have annual incomes above $43,000, they also qualify for the same level of reimbursement for their child care costs, which is 20%, or $4,000.
Family No. 1 has a taxable income of $50,000 a year. The Examiner calculated their state income tax at $2,152, based on 2023 state Wisconsin Department of Revenue tax tables for married joint filers. Family No. 2 has an income of $85,000, with a state income tax of $4,007.
According to the Examiner, the tax credit “would allow both families to avoid paying any state income tax.” This would wipe out the $2,152 in taxes that the $50,000 family owes as well as $4,000 of the tax bill that the $85,000 family owes.
If both families have the same $20,000 a year in child care expenses, the higher income family (No. 2) will have an out-of-pocket child care bill of $16,000 after the tax credit. But the lower-earning family (No. 1), with $50,000 in income, will have an out-of-pocket bill of $17,847 — nearly $2,000 more than the family with $85,000 in income.
Tim Smeeding, an economist and emeritus professor at the La Follette School of Public Affairs at the University of Wisconsin, told the Examiner that the proposed tax credit mostly benefits families “who can afford to spend a lot on child care.” It doesn’t help people who can’t afford child care, he added.
The debate is probably moot, anyway. Even if the bill passes the Wisconsin Assembly, it is likely to be vetoed by Wisconsin Gov. Tony Evers, a Democrat who already vetoed an earlier tax cut proposal in July, the AP reported. And although Republicans control both chambers of the state legislature, they don’t have the necessary two-thirds majority to override vetoes unless Democrats join in, which is unlikely.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Latest Proposed Child Tax Credit Payments Would Actually Benefit Wealthy Families More — Could It Pass?
