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2010 Budget Tax Proposal

Permanently Expand Refundability of the Child Tax Credit

Families with children under age 17 can claim a Child Tax Credit (CTC) of up to $1,000 per child. If the credit exceeds taxes owed, families can receive some or all of the balance as a refund, known as the Additional Child Tax Credit (ACTC). The ACTC is limited to 15 percent of earnings above a threshold that is indexed to inflation. The economic stimulus act (“American Recovery and Reinvestment Act of 2009”) temporarily set that threshold at $3,000 so that families would start getting at least a partial credit at lower earnings levels than they did under prior law ($12,550 in 2009). The president proposes to make the lower threshold permanent and no longer index the threshold for inflation.

Lowering the threshold for refundability would encourage low-income workers to work more by increasing their after-tax wage but the effect would likely be small. Not indexing the threshold would cause the threshold to decrease in real terms over time, making more families eligible for the refundable credit and increasing the size of the credit for many families.

Additional Resources
Tax Policy Briefing Book: Taxation and the Family: What is the child tax credit?
Stimulus Act Report Card: Increase Eligibility for the Refundable Portion of the Child Tax Credit
Description of Revenue Provisions Contained in the President’s Fiscal Year 2010 Budget Proposal; Part One: Individual Income Tax and Estate and Gift Tax Provisions (JCS-2-09), Joint Committee on Taxation, September 2009, pp 82-83