American Family Act Proposes Monthly Child Tax Credit Payments, Replacing Annual System

This legislation, the American Family Act, proposes a significant overhaul to the Child Tax Credit (CTC), shifting from an annual credit claimed on tax returns to a system of monthly advance payments delivered throughout the year. If enacted, this bill would amend the Internal Revenue Code to establish a new, generally larger, and fully refundable credit for qualifying children, aiming to provide more consistent financial support to families.

The New Monthly Payout Explained

The core of the bill (Section 24A) sets up a new monthly allowance structure. Families could receive up to $300 per month for each child aged 6 through 17. The amount increases significantly for younger children: up to 120% of that $300 (effectively $360) per month for kids under 6, and a much larger one-time boost (800% of $300, or $2400) for newborns in their first month. Crucially, this credit is designed to be fully refundable, meaning families could receive the full amount as a refund even if they don't owe federal income taxes. However, these maximum amounts are subject to income limitations. The monthly payments start phasing down for married couples filing jointly with modified adjusted gross incomes (MAGI) over $150,000, heads of household over $112,500, and single filers over $75,000. A secondary phase-out kicks in at higher income levels ($400k joint, $300k head of household, $200k single). Both the base $300 amount and these income thresholds are slated for inflation adjustments after 2025.

Getting the Money: Advance Payments and Reconciliation

Instead of waiting for tax time, the bill mandates the IRS (via Section 7527A) to estimate and distribute these credits as advance payments each month, likely starting soon after the bill's enactment date for the monthly payment provisions. The IRS would use recent tax return information to estimate eligibility and payment amounts. To manage this, the bill requires the creation of an online portal where taxpayers can update their information (like income changes or number of dependents) to adjust payments. The system includes tie-breaker rules for situations where multiple taxpayers might claim the same child. A key detail for families is the reconciliation process (Section 24A(j)): the total advance payments received during the year will be compared to the actual credit amount calculated on the annual tax return. If a family received more in advance payments than they ultimately qualify for (perhaps due to an income increase mid-year), they might have to repay the difference, potentially reducing their tax refund or increasing their tax liability. This bill also terminates the existing annual Child Tax Credit (currently under Section 24) for tax years after 2024.

What About Other Dependents?

The act also includes a provision (Section 24B) for dependents who don't qualify for the main child tax credit – think college students over 17 supported by parents, or an elderly relative living with the family. For these individuals, the bill proposes a separate, non-refundable credit of $500 per dependent. This credit also has an income limitation, beginning to phase out for taxpayers with MAGI above $400,000 (joint), $300,000 (head of household), or $200,000 (single).