tax policy center
Tax Policy Center

Taxes and the Poor: Can poor families benefit from the child tax credit?

Taxpayers may claim a child tax credit (CTC) of up to $1,000 per qualifying child under age 17. The CTC is partially refundable, technically as an "additional child tax credit" (ACTC): in 2009 the credit can exceed tax liability by up to 15 percent of earnings above $3,000. Thus, for example, a family with two or more qualifying children and earnings of $15,000 may claim a refund of up to $1,800 over and above any tax liability. However, low-income families that earn $3,000 or less receive no CTC or ACTC.

  • In 2005 more than one-quarter of all qualifying children were in families that could not receive the full CTC because they earned too little. Nearly half of those children were in families that received no credit at all
  • The families of nearly half of all black children and 46 percent of Hispanic children received less than the full CTC in 2005 because they earned too little.
  • Prior to 2001, only families with three or more children could receive the ACTC.  The refundable portion of the CTC was limited to the amount by which a family's Social Security and Medicare taxes exceed their earned income tax credit (EITC).  Few families qualified for the ACTC.
  • The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) expanded the ACTC to equal 15 percent of a family's earnings over a threshold - set at $10,000 in 2001 and indexed annually for inflation.  Indexing the threshold meant that poor families whose earnings failed to keep pace with inflation received less and less ACTC over time.
  • The American Recovery and Reinvestment Act of 2009 temporarily reduced the ACTC threshold to $3,000 for 2009 and 2010, extending refundability to more poor families.
  • The ACTC provisions of both EGTRRA and ARRA expire after 2010. Unless Congress acts, the ACTC will again be limited to families with at least three children with significant earnings.
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