Brief Child Tax Credit Overview

The federal government and twelve states offer child tax credits to enhance the economic security of families with children, particularly those in lower- to middle-income brackets. The amount of the tax credits is determined primarily by income level, marital status and number of dependent children. It’s estimated that the federal child tax credit lifts nearly 2 million children out of poverty each year.

Federal Child Tax Credit 

Historically, the federal child tax credit has had bipartisan support. It was established as a part of the 1997 Taxpayer Relief Act. Eligible recipients subtract the credit amount from their owed federal income taxes. Originally, the tax credit was $400 per child under age 17 and nonrefundable for most families. In 1998, the tax credit was increased to $500 per child under age 17. The tax credit amount increased again and was made refundable in 2001 to coordinate with the Earned Income Tax Credit. The refundable portion is called the Additional Child Tax Credit.

By 2009, the income thresholds for the child tax credit and earned income tax credit no longer aligned. The American Taxpayer Relief Act of 2012 increased the value of the federal child tax credit to $1,000 and increased the income threshold to correspond with the earned income tax credit. The Tax Cuts and Jobs Act of 2017 doubled the tax credit to $2,000 and made limits to the refundable amount of up to $1,400 per child. It also introduced phase out thresholds and rates for higher-income taxpayers. The act is temporary and will expire on Dec. 31, 2025.

The American Rescue Plan Act of 2021 (ARPA) temporarily expanded the child tax credit for tax year 2021 from $2,000 to $3,600 per child under age 6 and $3,000 per child up to age 17 (rather than the previous limit of age 16). The size of the expanded benefit gradually diminished for single filers earning more than $75,000 per year and married couples earning more than $150,000 a year. ARPA temporarily made the tax credit fully refundable and paid out half of the total credit in monthly payments for the first six months, rather than once per year. Initial research suggests that the expanded child tax credit reached over 61 million children in more than 36 million households, and funds were primarily used for child care, food, housing and other basic needs. The federal child tax credit reverted to previous payment levels for tax year 2022.

State-Level Child Tax Credit

Twelve states have enacted a child tax credit in addition to the federal credit. Nine of the twelve states (California, Colorado, Connecticut, Maryland, Massachusetts, New Jersey, New Mexico, New York and Vermont) have made the child tax credit refundable. California, Connecticut, Idaho, Maine, Maryland, Massachusetts, New Jersey, New Mexico and Vermont established a fixed limit for the tax credit ranging from $100 to $1,000 per qualifying child. Colorado developed a tiered system based on income levels and is calculated by a percentage of the federal child tax credit.

Eligibility requirements differ among states’ child tax credits. Oklahoma limits the child tax credit to families earning less than $100,000 per year. Colorado and New York have age restrictions for qualifying children (under age 6 in Colorado, at least age 4 in New York). Maryland's child tax credit is specifically for the lowest income families and restricts eligibility to those earning $6,000 or less per year. Maryland also restricts eligibility to families with children with disabilities. All eight states allow filers to claim both the state and federal child tax credit.

Similar to the federal child tax credit, state child tax credits are a strategy for improving family economic stability and often have bipartisan support. The COVID-19 pandemic created or compounded economic burdens for many families, and recent legislative trends suggest states are increasingly considering child tax credits. Since 2019, eight states (Hawaii, Illinois, Iowa, Kansas, Michigan, Missouri, Oregon and West Virginia) have introduced legislation to create state-level child tax credits. Additionally, California and New York have both introduced legislation to expand their current state child tax credits.

Notes:

• Maine: Prorated for non-resident and part-year resident taxpayers. State statute specifies the dependent exemption tax credit to be used as a tax credit.
• Massachusetts: The state also offers a refundable Dependent Care Tax Credit for expenses, but taxpayers can only choose the Dependent Care Tax Credit or the Household Dependent Tax Credit, not both.
• New Jersey: For taxpayers with income between $30,000 and $40,000 the credit is $400 per child. For taxpayers with income between $40,000 and $50,000 the credit is $300 per child. For taxpayers with income between $50,000 and $60,000 the credit is $200 per child. For taxpayers with income between $60,000 and $80,000 the credit is $100 per child.
• New York: Tax filers with qualifying children and incomes under $110,000 for married couples and $75,000 for singles, who did not claim the federal child tax credit but meet all other eligibility requirements shown above, receive a credit of $100 multiplied by the number of qualifying children.
• Oklahoma: Filers can choose between this or another option, 20% of the credit for child care expenses allowed under the Internal Revenue Code of the United States or 5% of the child tax credit allowed under the Internal Revenue Code, whichever amount is greater.
• Vermont: The tax credit will phase out at a rate of $20 per every $1,000 earned over the $125,000 threshold.

Source: StateNet bill tracking current as of July 2022.