Tax Credits for Working Families

The Child Tax Credit (CTC) is a federal tax credit designed to help families offset the cost of raising children. The credit was created in 1997 and expanded in 2001 and 2009. Under current law, the credit is worth up to $1,000 per child under age 17 at the end of the tax year, and is subtracted from the amount of income taxes the family owes. Since a portion of the credit is refundable, if the credit exceeds the amount of taxes the family owes, a percentage of the remaining credit is given back to the family in a refund check, and is officially called the Additional Child Tax Credit. A family can receive a refund worth 15 percent of earnings above $3,000, up to $1,000 per child.

Families must have at least $3,000 in earned income to claim any portion of the credit. The refund formula means that families with one child become eligible for the full credit with incomes of $9,666 or more, families with two children when they have incomes of $16,333 or more, and for each additional child the minimum income to receive the full credit increases by $6666. The credit begins to phase out when family income reaches $75,000 for a single filer and $110,000 for couples. The phase out allows families to claim a portion of the credit, capped at 5 percent of their income over the phase out threshold, so married couples making $130,000 ($95,000 for heads of household) with one child receive no credit at all, while families with two children are eligible for a partial payment with incomes up to $150,000 ($115,000 for heads of household) and families with more children are eligible at even higher income levels.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) doubled the credit from $500 to $1,000, and made the refundable portion of the CTC available to more families; these improvements were extended several times and made permanent in the American Taxpayer Relief Act of 2012. The American Recovery and Reinvestment Tax Act of 2009 (ARRA) lowered the minimum income that families must earn to claim the credit to $3,000, an improvement that was extended twice, most recently through 2017 in the American Taxpayer Relief Act of 2012. Without this provision, families would probably have to earn over $13,000 in 2013 to claim the credit.

New York and Oklahoma have state Child Tax Credits that piggyback on the federal credit. Colorado has enacted such a credit for children under age 6, but it will only go into effect when Congress enables states to tax internet sales. North Carolina and California also have state Child Tax Credits, but they are not based on a percentage of the federal credit, and New York has a second, temporary, child tax credit for 2014, 2015, and 2016 that is not based on the federal credit.

For more information on the Child Tax Credit see:

Policy Basics: The Child Tax Credit, Center on Budget and Policy Priorities, January, 2014

Taxation and the Family: What is the Child Tax Credit? Elaine Maag and Adam Carasso, Tax Policy Center, January 2013