What Is the Child Tax Credit?

The Child Tax Credit is a credit that can be applied to the calculated Federal Income Taxes you owe.  Depending on your Adjusted Gross Income and filing status, coupled with the number of qualifying dependents, you can reduce the amount of taxes owed by up to $1,000 per child.

The U S Department of Agriculture determines the average cost of raising a child.  According their 2005 information, the average cost of raising a child from birth to age 17 is $500,000!  That is just shy of $30,000 per child, annually!

The Child Tax Credit was initially established by Congress in 1997 as part of the Taxpayer Relief Act to assist larger families with limited income.  The initial credit was $400.00 per qualifying child and for those families with 3 or more children, the Child Tax Credit was refundable.  The Child Tax Credit has increased over time to the current $1,000.00 per qualifying child.

However, there is a refundability threshold which can exclude the poorest of taxpayers from obtaining any tax credit or allow them to obtain only a minimal tax credit.  For 2009 and 2010, the threshold was reduced to $3,000.  If, however, Congress does not extend the reduced threshold beyond 2010 and should it return to previous years’ restrictions, a single parent with two children earning at the poverty level ($18,310/year), would receive a tax credit of not $2,000, but approximately $900.

Single parent families with children under the age of 18 comprise just under a third of the total of U.S. family households with minor children.  Of that, approximately 80% are single mother households.  Given the disparity in wages that continues between the genders, to not extend the lowered refundability threshold ($3,000.00)  would exempt more single female heads of household than it would other households with minor children.

Overall, the Child Tax Credit is an effort to provide a tax break to families having the expense of raising minor children.  To qualify, the minor children (under 17) must qualify as a dependent, can be either a son, daughter, legally adopted or legally fostered, a stepchild, a grandchild, even a great grandchild or a niece or nephew and must have lived with you for more than ½ of the subject year.  Additionally, the qualifying child must either be a U.S. Citizen, a U. S. National or a U. S. Resident Alien.

The Child Tax Credit is in addition to deductions for dependents as well as in addition to any credits that can be taken under the Child and Dependent Care Expenses Tax Credit (IRS Tax Form 2441).

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