Raising children can be expensive for working families. That’s why in 1997 the federal government enacted the Child Tax Credit (CTC) in which eligible families can receive a credit of up to $1,000 per child under the age of 17.
The Child Tax Credit has received bipartisan support, and was expanded in 2001. A qualifying family will subtract the credit amount from the owed taxes for the year. If a couple has two eligible children, they can deduct $2,000 from the amount of taxes they would owe ($1,000 per child).
Can I Get a Refund?
There is a part of the CTC that allows a family to receive a refund if the credit amount exceeds that amount a family owes. This is known as the Additional Child Tax Credit. This allows working families to take advantage of the tax credit even if their incomes are low and they don’t owe any federal taxes.
For the 2014 tax year, working families will receive a tax refund equivalent to 15% of their earning greater than $3,000, with a maximum of $1,000 per child. This factor helps low income families take advantage of the benefits that are usually available to higher income families.
What is the Value of the CTC?
The Child Tax Credit increases as the parent’s income increases to the $1,000 limit per child. Families have to earn more than $3,000 in order to qualify for the tax credit, although a family with an income between $3,000 and $16,333 and two children can receive a partial credit.
Why is the CTC important?
Since it was enacted, the tax credit has proven to be effective in reducing poverty. Last year, approximately 3 million people were protected from poverty thanks to the credit, including 1.6 million children. The CTC can be used in combination with the Earned Income Tax Credit (EITC), which helps a greater number of families rise above the poverty level. Often low income families aren’t eligible for other tax assistance programs for children, such as the Child and Dependent Care Tax Credit, which aren’t refundable.
The higher a family’s income, the less of a need for assistance with raising children. A family with two children who makes more than $110,000 a year will receive a smaller CTC, while those with an annual income greater than $150,000 receive no tax credit at all. Single or head of household filers have an income threshold of $75,000 to receive credit, while anything above that will receive a smaller credit. Single filers who make more than $115,000 a year aren’t eligible for the credit.