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Child Tax Credit

Overview

T + T

Background

HISTORY

The Child Tax Credit was created in 1997 by the Taxpayer Relief Act of 1997 and became effective beginning in the 1998 tax year. Like other tax credits, the Child Tax Credit reduced tax liability dollar for dollar up to a cap of $600. The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 set a graduated increase of the cap from $600 to $1,000 and made the credit refundable for families with earnings over $10,000.

The American Recovery and Reinvestment Act (ARRA) of 2009 lowered the refundability threshold from $10,000 to $3,000, thus allowing more low-income families to qualify for a credit refund. At the end of 2012 the ARRA changes were extended for five years (through the end of 2017) as part of the American Taxpayer Relief Act. Thus, beginning in 2018, the refundability threshold was increased once again to families with earnings over $10,000.

In December 2017 the Tax Cuts and Jobs Act (TCJA) of 2017 passed, which increased the amount of the Child Tax Credit up to $2,000, as well as increasing the income eligibility guidelines. The TCJA also increased the amount of the child tax credit that is refundable (known as the Child Additional Tax Credit) up to $1,400. However, the law caps the refundable portion of the child tax credit to 15% of the household’s earned income that exceeds $4,500.

FUNDING

Unlike a government benefit, which is funded through specific allocations and expenditures, federal tax credits are dispersed from tax revenue collected by the IRS.

Summary of the Child Tax Credit

The Child Tax Credit (CTC) is a tax benefit offered by the federal government for taxpayers with dependent children under the age of 17. It is designed to reduce or eliminate a taxpayer’s federal income tax liability.

ADDITIONAL CHILD TAX CREDIT

The Additional Child Tax Credit (ACTC) is a refundable tax credit that individuals may receive if the Child Tax Credit is greater than the total amount of income taxes owed, as long as there is earned income of at least $2,500. The credit is worth $1,400 for each qualifying child. For information on the Additional Child Tax Credit, see below, Additional Child Tax Credit.