Can poor families benefit from the child tax credit?
The child tax credit (CTC) provides a credit of up to $1,000 per child under age 17. If the CTC exceeds taxes owed, families are eligible to receive all or part of the balance as a refund, known as the additional child tax credit (ACTC) or refundable CTC. The credit is reduced by 5 percent of adjusted gross income over $75,000 for single parents and over $110,000 for married couples.
How the CTC Works
Taxpayers can claim a child tax credit of up to $1,000 per child under age 17. The credit is reduced by 5 percent of adjusted gross income over $75,000 for single parents ($110,000 for married couples). If the credit exceeds taxes owed, taxpayers can receive some or all of the balance as a refund, known as the additional child tax credit (ACTC) or refundable CTC. The ACTC is limited to 15 percent of earnings above a threshold, which is indexed to inflation. Starting in 2011, the threshold was temporarily reduced to $3,000. That reduction was made permanent in 2015 with the passage of the Bipartisan Budget Act of 2015.
Families at nearly all income levels benefit from the CTC – with the largest average benefits (about $1,500) going to families with children in the second and third income quintiles. Families in the highest income quintile receive the smallest average benefits since the credit phases out for workers once adjusted gross income reaches $75,000 (single parents) or $110,000 (married parents).
Neither the credit amount nor the phaseout point is indexed for inflation. Over time, the value of the credit will decline and as incomes grow, more people will be subject to the credit’s phase out.
Urban-Brookings Tax Policy Center. “Microsimulation Model, version 0515-1.”
Maag, Elaine. 2015. Reforming the Child Tax Credit: How different proposals change who benefits. Low Income Working Families. Washington, DC: Urban Institute.
Center on Budget and Policy Priorities. 2014. “Policy Basics: The Child Tax Credit.” Washington, DC: Center on Budget and Policy Priorities.
Maag, Elaine. 2013. “Child-Related Benefits in the Federal Income Tax.” Low-Income Working Families Brief 27. Washington, DC: Urban Institute.
Maag, Elaine, and Lydia Austin. 2014. “Implications for Changing the Child Tax Credit Refundability Threshold.” Tax Notes, July 24.
Maag, Elaine, Stephanie Rennane, and C. Eugene Steuerle. 2011. “A Reference Manual for Child Tax Benefits.” Discussion Paper 32. Washington, DC: Urban-Brookings Tax Policy Center.