Tax Policy Center: Children

Poverty and Income Tax Entry Threshold

info@taxpolicycenter.org ( Elaine Maag) — Wed, 07 Sep 2011 00:00:00 EST

The tax entry threshold is the income level at which a person begins paying federal income taxes. Unlike payroll taxes, income taxes do not start at the first dollar of earnings. Rather, the federal income tax system exempts an amount of income from taxation based on the type of tax unit (married or unmarried, with or without children) and the number of people in the tax unit. Tax credits can raise the tax entry threshold further. This article compares the tax entry threshold to the poverty line providing one way to judge how the tax system treats low-income families and providing a comparison of the relative generosity of the income tax for families with and without children.

Why Some Tax Units Pay No Income Tax

Wed, 27 Jul 2011 00:00:00 EST

About 46 percent of American households will pay no federal individual income tax in 2011, roughly half of them because of structural features of the income tax that provide basic exemptions for subsistence level income and for dependents. The other half are nontaxable because tax expenditures special provisions in the tax code that benefit selected taxpayers or activitieswipe out tax liabilities and, in the case of refundable credits, yield net payments from the government. Provisions that benefit senior citizens and low-income working families with children particularly affect households with income under $50,000 but other factors make higher-income households nontaxable.

Tax Simplification: Clarifying Work, Child, and Education Incentives

info@taxpolicycenter.org ( Elaine Maag) — Wed, 30 Mar 2011 00:00:00 EST

The federal income tax code is riddled with complex provisions concerning children. Families with children qualify for and receive substantial assistance, but the provisions are difficult for parents to understand and for the IRS to administer. This article proposes making uniform the definition of child under age 19, regardless of student status for the key child benefits: the earned income tax credit, the dependent exemption, head of household filing status, and the child tax credit. Savings from the proposal could be used to subsidize higher education, particularly for low-income families that would lose assistance from the EITC. The proposal would simplify the tax system, clarify incentives, and set the stage for broader reform.

Who Benefits From the Dependent Exemption?

info@taxpolicycenter.org ( Elaine Maag) — Thu, 30 Dec 2010 00:00:00 EST

The dependent exemption reduces taxable income by a fixed amount ($3,650 in 2010) for each qualifying child in the family. Benefits depend on a family's marginal tax rate. Low-income families receive a tax reduction of up to $365 per exemption compared to high income families that receive a tax reduction of $1,278 per exemption. Benefits flow mostly to families with relatively high incomes. In 2010, TPC estimates 1.5 percent of benefits will accrue to families in the lowest income quintile while 57.1 percent of benefits will accrue to families in the top 40 percent of the income distribution.

Extending Tax Credits for Low-Income Families

info@taxpolicycenter.org ( Elaine Maag) — Mon, 19 Jul 2010 00:00:00 EST

Policymakers should be thinking hard about low-income families with children and the tax code. In 2010, the federal income tax system will deliver substantial assistance to these families through refundable tax credits. The Tax Policy Center estimates a third fewer children would be in poverty if tax credits were counted in a persons available resources when measuring poverty. They are among the most potent anti-poverty programs for families with children. In 2011, some aid targeted to the poorest families will disappear as the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) and the American Recovery and Reinvestment Act (ARRA).

Credits and Exemptions for Children

info@taxpolicycenter.org ( Elaine Maag) — Wed, 14 Oct 2009 00:00:00 EST

The Earned Income Tax Credit, Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), and the dependent exemption all provide benefits to families with children. In 2009, a single mom (or dad) with two children can receive benefits ranging from $0 to about $7,500 - depending on her income, age of the children, and where the children live. While this assistance is extremely important to many low-income families, they must navigate a bewildering set of rules to take full advantage of the credits. Due to the piecewise implementation of these credits and exemptions, total benefits bounce around erratically as income grows.

Growth and Decline in Tax Credits For Families With Children

info@taxpolicycenter.org ( Elizabeth Bell, C. Eugene Steuerle) — Mon, 10 Jul 2006 00:00:00 EST

Under current law, there are three major tax credits that affect families with children: the earned income tax credit, the child and dependent care tax credit, and the child tax credit.

The Widespread Prevalence of Marriage Penalties : Testimony Before the Subcommittee on the District of Columbia, Committee on Appropriations, United States Senate

info@taxpolicycenter.org ( C. Eugene Steuerle) — Wed, 03 May 2006 00:00:00 EST

Citizens pay an overall marriage penalty when their combined social welfare benefits less taxes are lower when they are a married couple than when they are two single individuals. Because marriage is optional, marriage penalties or subsidies are assessed primarily for taking wedding vows, not for living together with other adults (although there are some exceptions).

Who Gets the Child Tax Credit?

info@taxpolicycenter.org ( Leonard E. Burman, Laura Wheaton) — Mon, 03 Oct 2005 00:00:00 EST

In 1997, Congress created a $500 per child tax credit (CTC). It has since been increased to $1,000 and made available to some lower-income families with children, even if they had no tax liability. Still, many low-income families (as well as some with high incomes) receive less than $1,000 per child in tax benefits. Moreover, because of differences in income, family composition, and employment status, nearly half of Blacks and 46 percent of Hispanics receive no or reduced benefits from the CTC because their incomes are too low. By comparison, only 18 percent of White children are in that category.

Tax Subsidies to Help Low-Income Families Pay for Child Care

info@taxpolicycenter.org ( Leonard E. Burman, Elaine Maag, Jeff Rohaly) — Thu, 23 Jun 2005 00:00:00 EST

Low-income working families face enormous challenges. Key among them is how to pay for decent child care. The largest federal subsidy is the Child and Dependent Care Tax Credit (CDCTC), a nonrefundable tax credit that offsets up to 35 percent of working parents' child care costs, subject to limits. Though not earmarked specifically for child care, the refundable Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) provide more help to low-income working families. This paper considers options to reform the CDCTC to assist low-income families. Expansions to the refundable tax credits that help families with children are also analyzed.

A Unified Children's Tax Credit

info@taxpolicycenter.org ( Adam Carasso, Jeff Rohaly, C. Eugene Steuerle) — Sun, 15 May 2005 00:00:00 EST

We suggest a tax reform that would repeal the EITC, the child tax credit, and the dependent exemption and replace them with a far simpler and often more generous Unified Child Credit (UCC) by 2010. Furthermore, while the dependent exemption is not allowed under the alternative minimum tax (AMT) and nearly 30 million taxpayers will be on the AMT in 2010, the UCC would provide necessary AMT relief in lieu of the dependent exemption and can be the vehicle for bipartisan AMT reform.

Tax Bracket and Tax Liabilities for Families With Children

info@taxpolicycenter.org ( William G. Gale) — Mon, 22 Nov 2004 00:00:00 EST

This tax fact shows that almost half of all children (and 80 percent of kids living with single parents) live in households that currently do not pay any federal income tax (net of credits). Thus, unless a new tax credit or an expansion of a tax credit is made refundable, the subsidy cannot help those children, who are presumably the most economically vulnerable.

Projected Distribution of EITC Claims in 2003

info@taxpolicycenter.org ( Adam Carasso, C. Eugene Steuerle) — Mon, 19 Jul 2004 00:00:00 EST

Enacted in 1975, and adjusted or expanded in the following years, the earned income tax credit costs more than the Temporary Assistance of Needy Families (TANF) program and almost as much as Food Stamps. But who benefits and by how much?

Effects of Recent Fiscal Policies on Today's Children and Future Generations

info@taxpolicycenter.org ( William G. Gale, Laurence J. Kotlikoff) — Thu, 01 Jul 2004 00:00:00 EST

Recent and proposed fiscal policies--the tax cuts, proposals to make them permanent, and the Medicare prescription drug bill--will hurt economic prospects for most of today's children and all future generations. The programs will leave economic growth largely unchanged, but will redistribute resources from future to current generations and, within each generation, from low- and middle-income families toward an affluent minority. These effects exacerbate the impact of underlying federal budget trends and processes that will place significant, imminent pressure on funding for children's programs. An expanded program of investments in children is both feasible and desirable.

Effects of Recent Fiscal Policies on Children

info@taxpolicycenter.org ( William G. Gale, Laurence J. Kotlikoff) — Mon, 07 Jun 2004 00:00:00 EST

Today's children represent the future of the century. This notion that children and future generations should have better living standards than current generations is central to universally shared views of economic progress. This article examines the effects of recent fiscal policies on children and the direct and indirect effects of one set of policies--the tax cuts and the Medicare spending increases that have been proposed and enacted since January 2001--on the long-term economic prospects of today's and tomorrow's youth.

How the 2001 and 2003 Tax Cuts Affect Hypothetical Families

Mon, 22 Dec 2003 00:00:00 EST

How do the 2001 and 2003 tax cuts affect families and tax return filers? What are the tax consequences of having children or being middle-income? The following discussion addresses these questions for an array of families with varying income, number of children, and marital status, for tax year 2003. The table shows the combined amount of tax cut each hypothetical household received from the 2001 and 2003 tax cuts at different levels of adjusted gross income (AGI).

Recent Expansions to the Child And Dependent Care Tax Credit

info@taxpolicycenter.org ( Elaine Maag) — Mon, 27 Oct 2003 00:00:00 EST

The Child and Dependent Care Tax Credit (CDCTC) provides tax relief to those who are working or are looking for work and are paying for the care of children under age 13, a disabled spouse, or other dependent. The credit equals a percentage of qualified expenses up to a cap. To qualify for the credit, the person must have earned income. This article will focus on recent expansions to the Child and Dependent Care Tax Credit.

Tax Reform for Families : An Earned Income Child Credit

info@taxpolicycenter.org ( Adam Carasso, C. Eugene Steuerle, Jeff Rohaly) — Tue, 01 Jul 2003 00:00:00 EST

[ Brookings Institution] This brief argues that the time is ripe for an integrated credit that combines the Earned Income Tax Credit (EITC) and the CTC into an Earned Income Child Credit (EICC). The proposed EICC simplifies and standardizes the definition of qualifying children and those who may claim them, and indexes the new credit for inflation so that it retains its purchasing power over time. The EICC also provides enhanced benefits to low-income working families and reduces marginal tax rates. One version would cost $6 billion relative to current law (JGTRRA) in calendar year 2003.

Give the 'Lucky Duckies' a Helping Hand, Too

info@taxpolicycenter.org ( Leonard E. Burman) — Fri, 06 Jun 2003 00:00:00 EST

[Newsday] The tax bill that President George W. Bush signed into law last week sped up most of the 2001 tax cuts' provisions that were supposed to phase in gradually. Left out, however, were provisions that would have helped low-income working familiesincluding the increase in the refund rate for the child tax credit. Why were low-income working families left out in the cold? It could be because they are "lucky duckies"as the Wall Street Journal calls workers with earnings so meager that they do not owe income tax.

Tax Entry Thresholds, 2000-2011

info@taxpolicycenter.org ( Elaine Maag) — Mon, 12 May 2003 00:00:00 EST

In 1986, a policy decision was made to exempt poor people from the income tax. Increases in the earned income tax credit (EITC) and the introduction of the child tax credit (CTC) have increased the so-called "tax entry threshold" since 1986, and provisions in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) would continue that trend through 2010. The CTC is scheduled to increase in stages to $1,000 over the next decade, and EGTRRA created a new lower tax rate for low-income families. The EITC will also increase gradually for many married couples.

EITC Reaches More Eligible Families Than TANF, Food Stamps

info@taxpolicycenter.org ( Leonard E. Burman, Deborah Kobes) — Mon, 17 Mar 2003 00:00:00 EST

The three largest federal income-support programs for low-income households are the Earned Income Tax Credit (EITC), food stamps, and Temporary Assistance to Needy Families (TANF). While TANF and food stamps are traditional spending programs, the EITC provides more than $30 billion each year through the tax code. The EITC appears to be quite successful in reaching low-income families with children. The figure below shows that from 1990 to 1999, between 80 and 86 percent of eligible households with children claimed the EITC. Participation rates for TANF and food stamps have not remained as stable.

Tax Burden on Poor Families Has Declined Over Time

info@taxpolicycenter.org ( Elaine Maag, Deborah Kobes) — Mon, 03 Feb 2003 00:00:00 EST

Families with children in poverty receive net subsidies from the federal income and payroll tax system, but that has not always been the case. In the 1970s, income tax filing thresholds were low, and even families in poverty who owed no income tax faced substantial payroll taxes. Congress enacted a refundable Earned Income Tax Credit (EITC) in 1975 to offset some payroll taxes for low-income workers. In 1986, 1990, 1993, and 2001, lawmakers greatly expanded the credit for families and moderately for childless workers. The combination of EITC changes, increases in exemptions and deductions, indexation of tax brackets, and expansion of the Child Tax Credit (CTC) has substantially improved the tax treatment of poor families with children.

The President's Proposal to Accelerate the Child Tax Credit and Related Options

info@taxpolicycenter.org ( Adam Carasso, C. Eugene Steuerle) — Fri, 31 Jan 2003 00:00:00 EST

The Presidents January 7, 2003 economic stimulus proposal for enhancing the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) would, in addition to ending the corporate taxation of dividends and speeding up tax rate and marriage penalty relief, accelerate the increase in the child credit from $600 to $1,000. This brief provides revenue and distributional estimates for the Presidents proposal as well as for different types of amendments that might be considered.

Growth in the Earned Income and Child Tax Credits

info@taxpolicycenter.org ( Adam Carasso, C. Eugene Steuerle) — Mon, 20 Jan 2003 00:00:00 EST

The last decade has seen a surge in the use of the tax system to deliver dollars to families with children. As late as the early 1990s, the most important tax provision applying to children was the dependent exemption. For several decades, however, Congress failed to increase this exemption in line with per capita income growth and, until 1985, for inflation as well. Beginning with tax reform in 1986, Congress expanded the earned income tax credit (EITC) in a series of legislative steps (1986, 1990, 1993, 2001). Meanwhile, lawmakers created the child tax credit (CTC) in 1997 and expanded it in 2001.

Providing Federal Assistance for Low-Income Families through the Tax System : A Primer

info@taxpolicycenter.org ( Frank Sammartino, Eric Toder, Elaine Maag) — Tue, 16 Jul 2002 00:00:00 EST

The federal income tax system has been used in a number of ways to promote favored forms of consumption and investment and to help selected groups of taxpayers. Since the mid-1980s, Congress has increasingly used the federal tax code to support social programs. This trend is likely to continue. We document provisions of the tax code that are aimed at low-income families including their history and recent changes. We also provide a review of literature surrounding the effect of these provisions. Finally, we discuss important differences in spending and tax programs. Understanding tax programs targeted toward low-income families is particularly important at a time when spending programs are being scaled back.

Taxpayers with Children and High-Income Households Gain Most From 2001 Tax Cut

info@taxpolicycenter.org ( Urban Institute) — Mon, 17 Jun 2002 00:00:00 EST

The largest tax cut in 20 years, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), favors families with children over those without children, especially among lower-income taxpayers, and high-income people over those with moderate and low incomes, concludes new research from the nonpartisan Urban-Brookings Tax Policy Center. [View the report]

The Effect of the 2001 Tax Cut on Low- and Middle-Income Families and Children

info@taxpolicycenter.org ( Leonard E. Burman, Elaine Maag, Jeff Rohaly) — Mon, 29 Apr 2002 00:00:00 EST

The 2001 tax cut has been roundly criticized because so much of the benefit goes to the rich, but the bill also did much to help low- and middle-income families. Most notably, it increased the child tax credit and made it refundablethat is, available to families with incomes too low to owe income tax. The legislation also simplified the EITC and increased it for some married couples. It increased the maximum child care tax credit, created a new 10 percent tax bracket, and raised the standard deduction for married couples, all of which will provide substantial benefit to middle-income families. Like the rest of the tax bill, many of these provisions phase in very slowly, and inflation erodes away much of the value of the advertised increases. Nonetheless, when fully phased in, the tax cuts will be worth over $1,700 per year in tax savings for a family of four at or near the poverty line, and over $1,000 for a family at twice the poverty level. Families with children do better than those without at almost every income level. The exception is upper-middle income families whose benefits are curtailed or eliminated by the alternative minimum tax. And, not surprisingly, the largest overall tax cuts by far will accrue to those with incomes over $200,000. [View the press release]