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Refundable Tax Credit

Remove Limitation on Repayment of Excess Premium Tax Credits

Under current law, qualified taxpayers receive a refundable Premium Tax Credit (PTC) to purchase health insurance through the marketplaces established by the Affordable Care Act. The PTC is advanceable, meaning that taxpayers may choose to receive advance payments of the PTC each month to cover payments of monthly health insurance premiums. The amount of PTC received depends on family size and income; for the advance PTC (APTC), the taxpayer must estimate these factors for the current year ahead of time. When the taxpayer files their return at the end of the year, the amount of APTC received based on estimated income is reconciled with the amount they should have received based on actual income.

If the taxpayer’s actual income is greater than their estimated income (or their family is smaller) and they received too much in APTC payments during the year, the excess credit amount generally must be repaid when the taxpayer files their return. However, for taxpayers with incomes below 400 percent of the federal poverty line (FPL), the amount of repayment is capped at certain dollar limits. For most unmarried individuals, the applicable limits in 2024 are $1,575 for individuals with incomes between 300 and 400 percent of the FPL, $950 for individuals between 200 and 300 percent of the FPL, and $375 for individuals below 200 percent of the FPL.

This proposal would eliminate the limits on excess credit amounts required to be repaid by taxpayers. All taxpayers would be liable for the full amount of any excess payments received, regardless of income.

Family and Community Inflation Relief Act: Budgetary and Distributional Effects

On July 21st 2022, Senator Chuck Grassley (R-IA) introduced legislation (text, summary) that would index the value of certain tax benefits to inflation.

Senator Romney’s Proposed Family Security Act

In early February 2021, Senator Mitt Romney (R-UT) proposed the Family Security Act to consolidate several forms of federal child assistance into a single, expanded child benefit to be administered through the Social Security Administration (SSA).

The act would provide a fully-refundable child allowance of $4,200 annually ($350 per month) per child ages 0-5, and $3,000 annually ($250 per month) per child ages 6 through 17. The credit would phase out at a rate of $50 for every additional $1,000 of income above the phase out threshold ($200K single / $400K joint).

The act would also simplify the existing structure of the Earned Income Tax Credit (EITC), so that the value of the credit is determined by filing status (married or single), and whether or not there are any eligible dependents (the number of dependents would no longer affect the value of the credit).

Other proposed changes to the tax code include elimination of head of household status, elimination of the child and dependent care credit (CDCTC), and elimination of the State and Local Tax (SALT) deduction.

PWBM projects that this proposal would cost $283 billion over the budget window, not including proposed changes to SNAP eligibility and elimination of TANF.

Ways and Means Committee Child Tax Credit Expansion Proposal

In early February 2021, Congressman Richard E. Neal (D-MA), Chairman of the House Ways and Means Committee, released legislative proposals for COVID-19 economic relief to be considered under the budget reconciliation process. One major element of the proposal is an expansion of the Child Tax Credit (CTC), similar to the plan envisioned in President Biden’s stimulus proposal. The CTC proposal would make the Child Tax Credit fully refundable, and would provide annual benefits of up to $3,600 per child under age 6, and up to $3,000 for children 17 and under. The credit would begin phasing out in value at a rate 5 cents for each additional dollar of income above $75,000 for single filers, $150,000 for married filers, and $112,500 for head of household filers. For tax units with incomes above these phase-out thresholds, the value of the credit would remain unchanged from current law.

PWBM projects that this provision would cost $100 billion. Families in the bottom 80 percent of the income distribution would see an average benefit of over $3,100.

Recovery Rebates in the CARES Act: Update

The Coronavirus Aid, Relief and Economic Security (CARES) Act would provide families with emergency “recovery rebates”. The bill would provide individuals with an advance refundable credit worth $1,200 ($2,400 for married couples) plus $500 for qualifying dependent children. These payments would begin to phase out starting at $75,000 in AGI ($150,000 for married couples and $112,500 for heads of household). Advance payments would be sent based on taxpayers' 2018 or 2019 AGI if available; for taxpayers who qualify with previous years' AGI but would not with 2020 AGI, no repayment is required. PWBM projects that the rebates would cost $285 billion. (Note: this estimate reflects PWBM's updated understanding of the bill's legislative language regarding advance payments; an earlier version of the estimate can be found here.)

Economic Assistance Payments in the Take Responsibility for Workers and Families Act

Take Responsibility for Workers and Families Act would provide families with emergency “economic assistance payments”. The House's version of the bill as of Monday, March 23rd 2020 would provide individuals with an advance refundable credit worth $1,500 ($2,500 for married couples) plus $1,500 for qualifying dependent children. These payments would begin to phase out starting at $75,000 in AGI ($150,000 for married couples and $112,500 for heads of household). PWBM projects that the rebates would cost $400 billion.

Recovery Rebates in the CARES Act

The Coronavirus Aid, Relief and Economic Security (CARES) Act would provide families with emergency “recovery rebates”. The bill would provide individuals with an advance refundable credit worth $1,200 ($2,400 for married couples) plus $500 for qualifying dependent children. These payments would begin to phase out starting at $75,000 in AGI ($150,000 for married couples and $112,500 for heads of household). PWBM projects that the rebates would cost $272 billion. (Note: this estimate was updated on 3/27/20 to correct a small modeling error.)

Options to Increase Charitable Giving Using Tax Incentives

Please see our previously published analysis.

LIFT (Livable Incomes for Families Today) the Middle Class Act

Please see our previously published analysis.

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