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Urge Congress to Create Economic Opportunity a Priority by Expanding Tax Credits for Low-Income Working Families
Practice speaking up with the Tax Credit Laser Talk
Recent Developments in Economic Opportunity Legislation
Learn more with our Economic Opportunity Campaign PowerPoint Presentation, and with the Campaigns Overview presentation from the IC.
Use this Q & A page to help prepare yourself for tough questions regarding low-income tax credits.
Child Tax Credit
More than 1 in 5 children nationwide live in families with incomes below $22,000/year. The Child Tax Credit (CTC) is a partially-refundable tax credit designed to help those families with the cost of raising those children, helping reduce the hardship and expand opportunities for those children. Like the Earned Income Tax Credit (EITC), the CTC is also designed to incentivize work.
The CTC is the largest tax code provision benefiting families with children; it is estimated to have distributed $58 billion in benefits for 38 million families in 2013. The Center on Budget and Policy Priorities estimates that in 2015, the CTC protected 2.8 million people from poverty, including 1.6 million children. That same year, the CTC also lessened the impacts of poverty for another 13.3 million people, including 6.6 million children.
By reducing the income tax liability of low-income families with children, and offering a refund of up to $1,000/child to some families, this credit helps offset the cost of raising children. Research has shown that an increase in family income of $1,000 is associated with an increase in children's test scores and college enrollment rates. We also know this credit goes right towards bettering the lives of children. Data shows that low-income families spend a larger share of their pre-tax income directly on their children than those with higher incomes (25 percent v. 16 percent for middle class families and 12 percent for wealthy families).
The CTC is different than the child care tax credit, which has been proposed by President Trump on the campaign trail and in his FY18 budget. You can learn more about the child care tax credit here.
How it Works
Households with at least one qualifying child that file federal tax returns can get a CTC of up to $1,000 for each child under 17 years old. To qualify for the CTC, the tax filer's earned income must be at least $3,000. Families earning more than $75,000 for single persons and $110,000 for married couples may not claim the credit.
The CTC is also refundable, meaning that even if the worker’s CTC is higher than what he/she owes in income tax, the worker can get a partial refund of the difference. This money can be used to pay bills, attend school, buy a car, save for the future, etc. However, the CTC is only partially refundable. When filing taxes for 2016, families can receive a refund equal to 15 percent of their earnings above $3,000, up to the credit’s full $1,000-per-child value. For example, a mother with two children who earns $14,000 in 2016 could receive 15 percent of $11,000, or $1,650, as a refund. Only those with earnings from work can claim the refund. Unlike the EITC, where the tax filer simply gets the difference between the EITC and what he/she owes in income tax, many low-income CTC families only get part of the credit back as a refund.
The refundability of the CTC is what makes it so important to low-income families. Because low-income families many times owe little or no income tax (though they still pay other taxes, like payroll, sales, and property taxes), they would receive little if any benefit from a non-refundable CTC.
Protect and Expand the CTC for Low-income Families
Proposals to Cut the CTC for Immigrant Families
In President Trump's Fiscal Year 2018 budget, he calls for a proposal that would require taxpayers to provide a Social Security Number to claim the CTC – an eligibility requirement aimed to exclude poor children from immigrant families whose working parents use an Individual Taxpayer Identification Number rather than a Social Security Number. Members of the House and Senate have also called for this proposal in the past. This idea has been championed previously by Senators David Vitter (R-LA) and Jeff Sessions (R-AL). In January 2014, Senator Kelly Ayotte (R-NH) proposed to cut the CTC from these families in order to pay for an extension of long-term unemployment benefits. However, the unemployment bill stalled in the Senate in February. In the House, a similar provision was included in the Child Tax Credit Improvement Act of 2014 (H.R. 4935), passed by the House on July 25, 2014. Additionally, Rep. Paul Ryan proposed to cut the CTC for immigrant families to help pay for an expansion of the EITC for childless workers as part of his plan Expanding Opportunity in America.
Now, President Trump is making this same proposal to fund tax cuts for millionaires, billionaires and corporations. This change could raise taxes on the families of more than 5 million children, including 4 million U.S. citizens. More than 4 million Latino families and children would be at a higher risk of facing poverty and hunger if individuals with Individual Taxpayer Identification Numbers were no longer eligible to use the CTC. Denying access to the CTC takes an average of $1,800 out of the pockets of low-income families – who, of families at all income levels, spend the highest percentage of their income directly on their children’s needs. It’s clear that children will bear the brunt of the proposed changes.
Expand the Child Tax Credit for More Low-income Families
The current CTC, while a vast improvement over previous law, still excludes America's poorest families (those who earn less than $3,000 per year). Also, the credit is only partially refundable thus requiring low-income families to earn more to receive the full credit as a refund.
RESULTS supports the following expansions of the Child Tax Credit:
RESULTS and its allies will continue to work to see that these changes are enacted into law. At a minimum, Congress should act to:
Background: CTC Reforms 2001-2013
When it was first enacted, the CTC was non-refundable for families with one or two qualifying children. These families could only apply the credit toward reducing any federal income tax liability they had (before taking the EITC). If a family did not owe any taxes, they would not be eligible for the credit. In 2001, the CTC joined the EITC as a source of income support for low-income working families with children. Thanks in part to the efforts of RESULTS and its allies, the CTC was doubled to $1,000 per child and made partially refundable for families earning over $10,000. Making the CTC partially refundable was an especially important reform because it made the credit available to lower-income families, as outlined above.
Despite this expansion, the CTC still excluded many low-income children from eligibility. With the income eligibility threshold set at $10,000, a family that earned less than that was deemed “too poor” to get the credit. The Tax Policy Center Briefing Book reported that in 2007, 27 percent of children whose parents work lived in families who received less than the full credit because their parents earned too little. “Forty percent of these children are in families that get no credit at all because their earnings fall below the refundability threshold.” Furthermore, the threshold was adjusted upward for inflation each year. By 2008, it had risen to $12,050. This became yet another barrier to benefits for low-income families. First, for those who fell below the threshold, the fact that it went up each year made it more and more difficult to become eligible, considering that low-income wages normally rise less than the rate of inflation, if at all. Second, for low-income families who were eligible for the CTC, because their refund was based on the family’s income above the threshold (see above), if the threshold went up but their income did not, their refund got smaller.
RESULTS and our allies worked to remedy this problem. RESULTS advocated for lowering the income eligibility threshold to zero and making the credit fully refundable. This would not only allow the lowest income families to claim the credit (remember, the credit is designed to help raise their children) and allow them to get a larger refund, it would also simplify the process significantly. In 2008, RESULTS and our allies successfully lobbied Congress to lower the income eligibility threshold and Congress responded by lowering it from $12,050 to $8,500 for the 2008 tax year. As a result, 13 million low-income children benefited from this change.
Because the 2008 change was only temporary, RESULTS and our allies again pushed for a broader expansion of the CTC in the economic recovery bill Congress and President Obama proposed in early 2009, the American Recovery and Reinvestment Act (ARRA). Again, we were successful; the final bill lowered the threshold to $3,000 for tax years 2009 and 2010. The Center on Budget and Policy Priorities estimates this opened up the CTC to another 3 million new children and expanded the credit for ten million more, with 80 percent of these benefits going to households earning at least $10,000 per year.
Unfortunately, this expansion was only temporary. Without an extension, over 18 million children would have seen their CTC reduced or eliminated in 2011, resulting in 600,000 children falling back into poverty. To avert this injustice, RESULTS and our allies pushed hard to get the ARRA expansion extended. Because of this work, a two-year extension of the $3,000 CTC threshold was included in the Tax Relief Act of 2010 passed by Congress in December 2010.
In January 2013, the American Taxpayer Relief Act made permanent the 2001 reforms (maintaining the maximum credit at $1,000 and making the credit partially refundable) and extended the ARRA expansion through 2017. Unfortunately, by not making it permanent, the $3,000 income eligibility threshold will revert back to its pre-2009 level in 2018 (with adjustments for inflation) if Congress does not act. The chart at right, produced by the Center on Budget and Policy Priorities, demonstrates how the expiration of the ARRA reform would lead to many low-income families losing the credit and others seeing a reduced credit. RESULTS strongly urges Congress to make the ARRA improvements to the CTC permanent and to expand the credit so that all low-income families can benefit.
CTC Provisions Made Permanent in 2015
In December 2015, Congress voted to make permanent the 2009 CTC provisions (which were set to expire in 2017), including lowering the phase-in earnings threshold. This allows for more families to qualify for the tax credit and, along with the EITC, helped lift more than 16 million taxpayers out of poverty or closer to the poverty line.
Briefing Book: Child Tax Credit http://www.taxpolicycenter.org/briefing-book/key-elements/family/ctc.cfm
Policy Basics: The Child Tax Credit, Center on Budget and Policy Priorities: http://www.cbpp.org/cms/index.cfm?fa=view&id=2989
The Important Role of the Child Tax Credit in Reducing Child Poverty, First Focus http://www.firstfocus.net/library/fact-sheets/the-important-role-of-the-child-tax-credit-in-reducing-child-poverty
CLASP: "The Child Tax Credit: A Critical Anti-Poverty Tool for Children in Immigrant Families" http://www.clasp.org/resources-and-publications/publication-1/The-Child-Tax-Credit-A-Critical-Anti-Poverty-Tool-for-Children-in-Immigrant-Families.pdf