by Patriotic Millionaires | Updated on 5.17.18
What is the Child Tax Credit? Enacted in 1997 and expanded with bipartisan support since 2001, the Child Tax Credit (CTC) helps working families offset the cost of raising children. The CTC is currently $2,000 per eligible child, with parents able to receive up to $1,400 per child as a refund if the credit is larger than their federal income tax liability.
Taxpayers eligible for the credit subtract it from the total amount of federal income taxes they would otherwise owe. For example, if a couple with two qualifying children would owe $4,600 in taxes without the credit, they would owe $600 in taxes with it, because the credit would reduce their tax bill by $2,000 per child.
Who benefits from the CTC? The CTC is a powerful weapon against poverty. In 2015, it lifted approximately 2.8 million people out of poverty, including about 1.6 million children, and lessened poverty for another 13.3 million people, including 6.6 million children. It lifts even more families with children out of poverty when combined with the Earned Income Tax Credit (EITC). Many of these low-income families are ineligible for other tax-based assistance for children, like the Child and Dependent Care Tax Credit, which is not refundable.
Also, research suggests that boosting working families’ income can expand opportunities for children, such as by improving school performance. Lifting low-income families’ income when a child is young not only tends to improve a child’s immediate well-being, but is associated with better health, more schooling, more hours worked, and higher earnings in adulthood, research has found.
What did the Republican tax bill do to the CTC? The GOP tax bill doubled the Child Tax Credit, from $1,000 per child to $2,000 per child, and increased the amount of the credit that is refundable. This may seem like a massive improvement, but when other provisions of the bill are taken into account, things don’t end up so well for needy parents. The GOP bill eliminated the deduction for personal exemptions, largely offsetting the increased CTC for larger families.
Previously, filers were able to deduct $4,050 for themselves, their spouses, and each child or dependent. For a family of four, that means that $16,200 would be shielded from federal taxation. In addition to the standard deduction of $6,350, a total of $28,900 would go tax free. The expanded standard deduction covers some of that, but many families with more children will now see their tax bill actually increase.
Even for those that will be getting a cut due to the expanded credit, almost none will get anything approaching an additional $1,000 per child. In fact, according to a study by CBPP, at least 10 million children in working families will receive CTC increases of just $75 or less. The bill also expanded the CTC to higher earners, by raising the threshold under which filers can claim the full credit. You used to need to make less than $110,000 as a couple to qualify for the CTC, but now couples earning up to $400,000 a year can take full advantage of the credit. There is little reason a couple making $400,000 a year should need this credit.
What should we do with the CTC? Congress needs to increase both the child tax credit per child AND the refundability percentage. The increase in the GOP tax bill was a good thing, but it was far from enough, especially considering the elimination of the personal deduction, which many families relied on.
Here's more from the experts at the Center for Budget & Policy Priorities:
Written by Patriotic Millionaires
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I am your constituent and I am asking you to save the Adoption Tax Credit. The recently unveiled tax reform legislation in the House would eliminate the Adoption Tax Credit. I ask that you oppose eliminating the Adoption Tax Credit and speak with Congressional leaders and your colleagues and urge them to preserve and strengthen the Adoption Tax Credit in tax reform legislation. In addition to saving the Adoption Tax Credit, Congress should demonstrate its commitment to children and families by making the Adoption Tax Credit refundable. The Adoption Tax Credit has helped tens of thousands of parents afford adoption, making it possible for them to provide children with loving, permanent families. Without the Adoption Tax Credit, many families will face a financial burden that may make adoption impossible. When there are such barriers to adoption, many children never find the forever family they need. You and your staff can learn more about the importance of the Adoption Tax Credit, including legislation to support which makes it refundable, and the children and families it helps at http://www.AdoptionTaxCredit.org. On behalf of the countless children waiting to be adopted in our state and across the country, and the many thousands of families who stand to benefit from the Adoption Tax Credit, thank you for your attention to this important issue.
We will be finalizing our adoption sometime in the next few months. We financially planned on this adoption with the tax credit as part of the equation. If you vote no we will be in deep financial trouble after leveraging everything we have to adopt a child. We are counting on the tax credit. This would put extreme financial strain on my working class family that sacrificed everything we have to adopt. Adoption is so expensive and yet worthwhile. Please don’t take this credit away, making this difficult journey even more difficult for families.