Facts In Action

The child tax credit is a provision of the tax law that awards a credit to families with children to help them with the cost of raising their children. In late spring, Congress signed into law a $350 billion tax-cut bill that expands the child tax credit - raising it from $600 to $1000. In theory, the credit is aimed in part at supporting low- and middle-income working families. However, the results of the expansion may be a greater benefit to middle- and upper-income families than to low-income working families.

The expansion of the child tax credit means a $400 per child refund for many taxpayers. However, as a result of a last-minute revision to the law, families making just above the minimum wage will not benefit from this increase in the credit. While families with incomes below $10,500 are not eligible for the tax credit because they do not pay federal taxes, families earning between $10,500 and $26,625 who do pay federal taxes are eligible for the credit, but will not receive any increase in the credit. These families include an estimated 11.9 million children.

The Senate originally attempted to include a provision that would ensure these minimum-wage families received the increase, but it was excluded from the final version of the tax bill that was signed into law. To address the problem, on June 5 the Senate passed new child credit legislation to help those families left out of the tax law. While the bill does not make any low-income families eligible for the credit that are not already receiving it, it does benefit 6.5 million low-income families earning between $10,500 and $26,625 by raising the amount of the credit they already receive. On average, these families will receive an increase in the child credit of approximately $150 per child for each of the next two years.

Shortly after this legislation was passed in the Senate, similar legislation was passed in the House. The House and Senate Conference Committee will meet to try and reach a compromise between the two bills. In the meantime, the ultimate impact of the changes to the child tax credit for low-income working families is still unclear.

Sources: The New Senate Child Credit Legislation - What it does and does not do, R. Greenstein, Center on Budget and Policy Priorities, June 25, 2003.

How The New Tax Law Alters The Child Tax Credit And How Low-Income Families Are Affected, A. Lee and R. Greenstein, Center on Budget and Policy Priorities, May 29, 2003.

For more information look online at: www.cbpp.org or www.nwlc.org

Facts in Action, July/August 2003