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How the Child Tax Credit Works

        Money | Taxes

Baby Steps to the Child Tax Credit

The child tax credit is likely to continue growing, just like those bundles of joy for whom tax filers claim it. Just look at the history: Tax cuts in 2001 and 2003 expanded the credit to $1,000 from $500 per child and made it at least partially refundable. Following the recent recession, lawmakers widened the income restrictions on the credit as part of the American Recovery and Reinvestment Act. In 2013, federal lawmakers made the 2001 and 2003 expansions permanent and extended the widened income range through 2017 [source: Center on Budget and Policy Priorities].

All of these moves are intended to provide a little extra help to working class families, particularly those at the lower end of the earnings spectrum. They appear to be working. According to a study by the Center on Budgets and Policy Priorities, changes to the child tax credit helped raise an additional 900,000 people out of poverty in 2012 beyond those who would have been brought above the poverty levels under previous versions of the credit. Combined with the earned income tax credit, which essentially provides a subsidy for low wage workers, the child tax credit helped raise 10.1 million people out of poverty in 2012, the study found. Its authors also concluded that children supported by the child tax credit and the earned income tax credit tended to do better in school, are healthier and more likely to work as adults [source: Center on Budget and Policy Priorities].

Perhaps it's no wonder then that policymakers are already talking about making the child tax credit even more accessible to American taxpayers. Among the tinkering is a proposed plan to increase the amount of the credit to up to as much as $5,000 or more per year [source: Pethokoukis]. Although some folks oppose the credit as an attempt to lure couples into having more kids, it appears safe to say that the child tax credit isn't going anywhere anytime soon.


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