Eligibility for Child Tax Credit by Age of Child

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

The text below is an excerpt from the complete document. Read the full report in PDF format.

Abstract

The child tax credit (CTC) is a $1,000 partially refundable federal income tax credit for each qualifying child under age 17. In 2007, tax filers may claim a refundable credit (over and above any tax liability) equal to 15 percent of the excess of earnings over $11,750, up to the $1,000 maximum per child. The earnings threshold means that families with very low incomes get no benefit from the credit, and others will receive only a partial credit. This brief analysis shows that many families with young children tend have lower incomes and are thus left out. In 2007, 30 percent of qualifying children under age 2 in working families had family incomes too low to benefit from the full credit, compared with 27 percent of children overall and 24 percent of children 10 and older.

Eligibility for Child Tax Credit by Age of Child

The child tax credit (CTC) is the single largest federal cash assistance program for children. The Joint Committee on Taxation (2006) estimates that the CTC will provide $46 billion in subsidies to families with children in 2007. By comparison, the earned income tax credit (EITC) provides less than $43 billion. Federal outlays on food stamps will total about $35 billion in 2007 and spending on other family support programs (the largest of which is temporary assistance for needy families, TANF) will equal about $24 billion. (Congressional Budget Office, 2007)

Enacted as part of the Taxpayer Relief Act of 1997, the CTC originally provided a $500 tax credit for each dependent child under the age of 17. The Economic Growth and Tax Relief and Reconciliation Act of 2001 and the Jobs and Growth Tax Relief and Reconciliation Act of 2003 doubled the credit to $1,000 and made it partially refundable. Families with earnings over $10,000 could receive at least a partial credit in excess of their tax liability. The refundable portion of the credit increased with earnings. Like many other federal income tax provisions, the $10,000 refundability threshold was indexed for inflation.

In 2007, tax filers may claim a refundable credit equal to 15 percent of the excess of earnings over $11,750, up to the $1,000 maximum per child. Thus, a family with one qualifying child and earnings of $18,417 could benefit from the full $1,000 credit, even if it had no income tax liability. (Families with two or more children would need higher earnings to gain the maximum benefit from the credit.) The expanded refundability has made the CTC more valuable to many lower-income families, though many with very low incomes were still left out.

(End of excerpt. The complete report is available in PDF format.)

Usage and reprints: Most publications may be downloaded free of charge from the web site and may be used and copies made for research, academic, policy or other non-commercial purposes. Proper attribution is required. Posting UI research papers on other websites is permitted subject to prior approval from the Urban Institute—contact [email protected].

If you are unable to access or print the PDF document please contact us or call the Publications Office at (202) 261-5687.

Disclaimer: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Copyright of the written materials contained within the Urban Institute website is owned or controlled by the Urban Institute.