The latest pandemic relief package presented in Congress includes a plan to provide families with $3,000 per child over the next year via a fully refundable tax credit. But what exactly is a child tax credit?
A tax credit is a specific amount of money taxpayers can subtract from the taxes they owe to the government. A tax credit may be granted to help disadvantaged Americans or help promote specific habits (like renewable energy tax credits). A child tax credit applies to parents specifically and is intended to provide financial relief to families.
Currently, a child tax credit provides a family with a credit of $2,000 per child under the age of 17 who is an American citizen. If a single parent earns more than $200,000 annually (or $400,000 for married couples), the credit is reduced by 5 percent. If the credit exceeds the amount of taxes owed, the head(s) of the household would receive up to $1,400 as a refund per child. For children who are 17 to 18 years of age, or college students who are 19 to 24 years of age, a $500 nonrefundable credit can be received for each child. This credit for older children became available in 2018 under the Tax Cuts and Jobs Act.
According to Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, each year, the child tax credit in conjunction with the earned income tax credit, lifts 5.5 million children out of poverty in the United States.