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Budget Header 2011

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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. 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.

The president made a similar proposal in his 2010 budget, where he also proposed to discontinue indexing the threshold for inflation. Budget materials released to date do not address the issue. 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.

The president would include the increased refundability of the child tax credit in his budget baseline.

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