Family Tax Credits in the American Recovery and Reinvestment Act of 2009: Child Tax Credit

Child Tax Credit

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The Child Tax Credit (CTC) can be worth up to $1,000 per child for families with qualifying children under the age of 17. But the CTC is only partially refundable. The refundable portion of the CTC is 15 percent of earnings above a threshold, up to the maximum value of the credit. The earnings threshold for the refundable CTC was set at $10,000 in 2001 and set to increase for inflation each year. In 2008, because of inflation, the threshold would have reached $12,050 - but last year, Congress reduced the earnings threshold for 2008 to $8,500.

The ARRA reduces the earnings threshold for the refundable component of the CTC from $12,550 in 2009 and an estimated $12,600 in 2010 to $3,000 for both years.

The reduction in the earnings threshold means that, for example, parents with two children earning $10,000 a year, who are eligible for a refundable CTC of $225 for 2008 (0.15($10,000-$8,500)), would be eligible for a refundable CTC of $1,050 in 2009 and 2010 (0.15($10,000-$3,000)). (If they had only one child, they would be eligible for a maximum of $1,000.) Compared with 2008, this change will make 2.9 million more children eligible for the credit and increase the credit for an additional 10 million children.

Tax filers will receive the credit on their tax returns the year after it is earned.