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Child Tax Credit

Overview

T + T

Background

HISTORY

The Child Tax Credit was created in 1997 by the Taxpayer Relief Act of 1997 and became effective beginning in the 1998 tax year. Like other tax credits, the Child Tax Credit reduces tax liability dollar for dollar of the value of the credit. The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 set a graduated increase of the cap from $600 to $1,000 and made the credit refundable for families with earnings over $10,000, known as the Additional Tax Credit. The American Recovery and Reinvestment Act (ARRA) of 2009 lowered the refundability threshold from $10,000 to $3,000, thus allowing more low-income families to qualify. At the end of 2012, the EGTRRA changes to the child tax credit were made permanent, while the ARRA changes were extended for five years (through the end of 2017) as part of the American Taxpayer Relief Act. Thus, under current law, beginning in 2018, the child tax credit will still be worth up to $1,000 per child credit, but the refundability threshold will increase from $3,000 to $10,000.

FUNDING

Unlike a government benefit, which is funded through specific allocations and expenditures, federal tax credits are dispersed from tax revenue collected by the IRS.

Summary of the Child Tax Credit

The Child Tax Credit (CTC) is a tax benefit offered by the federal government for taxpayers raising dependent children under the age of 17. It is designed to reduce or eliminate a taxpayer’s federal income tax liability and may provide a refund.

ADDITIONAL CHILD TAX CREDIT

The Additional Child Tax Credit may provide a refund even if the individual does not owe a tax. The total amount of the Child Tax Credit and any Additional Child Tax Credit cannot exceed the maximum of $1,000 for each qualifying child. For information on the Additional Child Tax Credit, see below, Additional Child Tax Credit.