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Child tax credits

Health Factors: Income
Decision Makers: State Government Federal Government
Evidence Rating: Expert Opinion
Population Reach: 20-49% of WI's population
Impact on Disparities: Likely to decrease disparities

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Description

The federal government and some state governments offer child tax credits (CTCs) to eligible families with children less than 17 years of age. The federal CTC is partially refundable and varies in amount based on income and number of children. In 2014, the federal CTC was equal to 15% of income above $3,000, up to $1,000 per child. Families that earn less than the set amount are not eligible for the federal CTC; many low income families earning more than this amount do not receive the full value of the tax credit (CBPP-CTC). States that offer CTCs have various eligibility rules. Similar to the federal CTC, state refund amounts vary by income and number of children. The CTC could be expanded through increasing eligibility by age (e.g., to families with 17 and 18 year old children), increasing the amount of the credit, or making the credit fully refundable.

Expected Beneficial Outcomes

Reduced poverty
Increased employment
Increased academic achievement

Evidence of Effectiveness

Expanding refundable tax credits for working families, such as the child tax credit (CTC), is a suggested strategy to reduce poverty (CBPP-Sherman 2013, CDF 2015, NCCP-Hartig 2014) and encourage work in low income families (Urban-Maag 2011). However, additional evidence is needed to confirm effects and determine optimal tax benefit amounts.

Available evidence suggests that the CTC helps reduce and alleviate poverty in the families that receive it (CBPP-CTC, CBPP-Sherman 2013). Increases in the amount of tax credits received appear to improve test scores among children in families that receive the credits. Increased test scores are associated with a variety of positive outcomes in adulthood, such as a higher likelihood of attending college and higher earnings (Chetty 2011).

A recent report projects that making the child tax credit fully refundable would reduce child poverty by 12% (1.3 million children) with the greatest benefit among black and white children, and families with no working adults. Making it fully refundable would cost approximately $12.4 billion (CDF 2015).

Implementation

United States

The federal child tax credit amount doubled and was made partially refundable in 2001 and 2003; the 2013 American Taxpayer Relief Act made these changes permanent (CBPP-CTC). The America Recovery and Reinvestment Act (ARRA) of 2009 temporarily lowered the minimum eligible income from $12,950 to $3,000. Minimum eligible income will revert to previous levels in 2018 (Urban-Hahn 2014). In 2013, an estimated 13% of the CTC reached the poorest 20% of earners (Urban-Burman 2014).

New York, North Carolina, and Oklahoma have state child tax credits; New York’s credit is refundable (NCCP-Hartig 2014).

Wisconsin

Wisconsin does not have a state child tax credit (TCWF-CTC).

Implementation Resources

IRS-CTC - Internal Revenue Service (IRS). Child Tax Credit Publication 972. Accessed on November 24, 2015

Citations - Description

CBPP-CTC - Center on Budget and Policy Priorities (CBPP). The Child Tax Credit. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2014. Accessed on December 1, 2015

Citations - Evidence

CBPP-CTC - Center on Budget and Policy Priorities (CBPP). The Child Tax Credit. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2014. Accessed on December 1, 2015
CBPP-Sherman 2013 - Sherman A, Trisi D, Parrott S. Various supports for low-income families reduce poverty and have long-term positive effects on families and children. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2013. Accessed on November 24, 2015
CDF 2015 - Ending child poverty now. Washington, DC: Children's Defense Fund (CDF); 2015. Accessed on February 4, 2016
Chetty 2011 - Chetty R, Friedman JN, Rockoff J. New evidence on the long-term impacts of tax credits. Washington, DC: Statistics of Income (SOI), Internal Revenue Service (IRS); 2011. Accessed on December 14, 2015
NCCP-Hartig 2014 - Hartig S, Skinner C, Ekono M. Taxing the poor: State income tax policies make a big difference to working families. New York: National Center for Children in Poverty (NCCP); 2014. Accessed on February 5, 2016
Urban-Maag 2011 - Maag E, Rennane S, Steuerle CE. A reference manual for child tax benefits. Washington, DC: Urban Institute; 2011:Discussion Paper No. 32. Accessed on November 23, 2015

Citations - Implementation

CBPP-CTC - Center on Budget and Policy Priorities (CBPP). The Child Tax Credit. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2014. Accessed on December 1, 2015
NCCP-Hartig 2014 - Hartig S, Skinner C, Ekono M. Taxing the poor: State income tax policies make a big difference to working families. New York: National Center for Children in Poverty (NCCP); 2014. Accessed on February 5, 2016
TCWF-CTC - Tax Credits for Working Families (TCWF). Child tax credit. Accessed on November 23, 2015
Urban-Burman 2014 - Burman L, Maag E. The war on poverty moves to the tax code. Washington, DC: Urban Institute; 2014. Accessed on February 10, 2016
Urban-Hahn 2014 - Hahn H, Isaacs J, Edelstein S, Steele E, Steuerle C. Kids' share 2014: Report on federal expenditures on children through 2013. Washington, DC: Urban Institute; 2014. Accessed on February 5, 2016

Page Last Updated

March 10, 2015