Child Tax Credit Overview PDF

Child Tax Credit Overview National Conference of State Legislatures Updated November 22, 2024 Child Tax Credit Overview The federal government and 16 states offer child tax credits to enhance the economic security of families with children, pa...

Child Tax Credit Overview National Conference of State Legislatures Updated November 22, 2024 Child Tax Credit Overview The federal government and 16 states offer child tax credits to enhance the economic security of families with children, particularly those in lower- to middle-income brackets. The amount of the tax credits is determined primarily by income level, marital status and number of dependent children. It is estimated that the federal child tax credit lifts nearly 2 million children out of poverty each year. Federal Child Tax Credit Historically, the federal child tax credit has had bipartisan support. It was established as a part of the 1997 Taxpayer Relief Act. Eligible recipients subtract the credit amount from their owed federal income taxes. Originally, the tax credit was $400 per child younger than age 17 and nonrefundable for most families. In 1998, the tax credit was increased to $500 per child younger than age 17. The tax credit amount increased again and was made refundable in 2001 to coordinate with the earned income tax credit. The refundable portion is called the additional child tax credit. By 2009, the income thresholds for the child tax credit and earned income tax credit no longer aligned. The American Taxpayer Relief Act of 2012 increased the value of the federal child tax credit to $1,000 and increased the income threshold to correspond with the earned income tax credit. The Tax Cuts and Jobs Act of 2017 doubled the tax credit to $2,000 and made limits to the refundable amount of up to $1,400 per child. It also introduced phase out thresholds and rates for higher-income taxpayers. The act is temporary and will expire on Dec. 31, 2025. The American Rescue Plan Act of 2021 temporarily expanded the child tax credit for the 2021 tax year to $3,600 per child younger than age 6 and $3,000 per child up to age 17. The size of the expanded benefit gradually diminished for single filers earning more than $75,000 per year and married couples earning more than $150,000 a year. ARPA temporarily made the tax credit fully refundable and paid half of the total credit in monthly payments for the first six months, rather than once per year. The federal child tax credit reverted to previous payment levels for the 2022 tax year. State-Level Child Tax Credit Sixteen states have enacted a child tax credit in addition to the federal credit. Twelve of the 16 states (California, Colorado , Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Oregon and Vermont) have made the child tax credit refundable. Arizona, California, Colorado, Idaho, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New Mexico, Utah and Vermont established a fixed limit for the tax credit ranging from $25 to $3,200 per qualifying child. Eligibility requirements differ among states’ child tax credits. Oklahoma limits the child tax credit to families earning less than $100,000 per year. Colorado, Illinois and New York have age restrictions for qualifying children (under age 6 in Colorado, under age 12 in Illinois, at least age 4 in New York). Maryland's child tax credit is specifically for the lowest income families and restricts eligibility to those earning $6,000 or less per year. Maryland also restricts eligibility to families with children with disabilities. All eight states allow filers to claim both the state and federal child tax credit. Similar to the federal child tax credit, state child tax credits are a strategy for improving family economic stability and often have bipartisan support. The COVID-19 pandemic created or compounded economic burdens for many families, and recent legislative trends suggest states are increasingly considering child tax credits. Since 2019, 14 states (Connecticut, Hawaii, Illinois, Iowa, Kansas, Michigan, Missouri, Montana, Nebraska, New Hampshire, North Carolina, Oregon, Virginia and West Virginia) have introduced legislation to create state-level child tax credits. Connecticut previously established a one-time child tax rebate that expired in 2022. In addition to the state dependent credit, Arizona established a one-time child tax rebate which will expire in tax year 2024. Illinois passed legislation to create a state child tax credit dependent upon voter approval of a Senate Joint Resolution to provide funds. However, voters did not approve the resolution and the state’s child tax credit has not been implemented. Additionally, several states have introduced legislation to expand their current state child tax credits.