Tax Credits for Working Families

The Child Tax Credit (CTC) is a federal tax credit designed to help working families offset the cost of raising children. Created in 1997 and expanded in 2001 and 2009, the credit is now worth up to $1,000 per child under age 17 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, some of the difference will be given back to the family in a refund check. For tax years 2009, 2010, 2011 and 2012 a family can receive a refund worth 15 percent of earnings above $3,000, up to $1,000 per child.

In 2010, the credit phases in starting with income above $3,000 and begins to phase out when family income reaches $75,000 for a single filer and $110,000 for couples. Families making $130,000 ($95,000 for heads of household) receive no credit at all.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the American Recovery and Reinvestment Tax Act of 2009 (ARRA) made significant improvements to the CTC. These improvements were extended through December 31, 2012 in The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

  • EGTRRA doubled the credit from $500 to $1,000 and made the refundable portion of the CTC available to more families.
  • ARRA lowered the minimum threshold from at which the credit begins to phase in to $3,000, down from about $12,850.

New York and Oklahoma have state Child Tax Credits that piggyback on the federal credit. North Carolina and California also have state Child Tax Credits, but they are not based on a percentage of the federal credit. New York uses the same eligibility rules as the federal CTC, making the ARRA expanded minimum earnings threshold an important improvement for its state CTC as well. New York’s credit is worth 33 percent of the filer’s federal CTC or $100 multiplied by the number of qualifying children – whichever is greater. New York’s CTC could be a model for other states aiming to provide tax relief to families with children. Colorado has also enacted a CTC based on the federal credit, with the percentage of the credit varying by family income. That CTC will go into effect if Congress passes a law allowing states to tax online sales.

 

For more information on the Child Tax Credit see:

Policy Basics: The Child Tax Credit, Center on Budget and Policy Priorities, May 2012

Taxation and the Family: What is the Child Tax Credit? Elaine Maag and Adam Carasso, Tax Policy Center, July 2011

Failure to Extend Improvements in Child Tax Credit Would Harm Millions of Low-Income Working Families, Arloc Sherman, Avi Feller and Chuck Marr, Center on Budget and Policy Priorities, February 2010