The expansion
Benefit is offset by other changes included in new law
of a child tax credit sounds like good news for families, but a closer look reveals it may provide little relief for some of the lowest-income families, tax experts say.
The expansion of a child tax credit helped seal Congress’ approval of the Republican tax overhaul. Sen. Marco Rubio, R-Fla., had insisted that House-Senate negotiators allow low-income households to claim more of the child credit. And the final bill did so.
On the surface, this sounds like happy news for families. Yet tax experts say the expanded child credit will actually provide little relief for some of the lowest-income families.
A family can claim the credit for each child under 17 that they claim as a dependent and whom they have housed for at least half the year. The credit begins to phase out when adjusted gross income exceeds $75,000 for single parents or $110,000 for married couples.
The dollar value of the credit does rise with a household’s earnings. As a result, the proportion of families that receive the credit is higher among moderate- and middle-income families than among low-income households, according to the Tax Policy Center.
Still, the Center on Budget and Policy Priorities has concluded that the credit helped lift roughly 2.7 million people out of poverty in 2016.
The final version of the Republican bill doubles the full tax credit to $2,000 per child. And by raising the income threshold at which the credit phases out, the bill will allow more middle and upper-income families to claim it. It now won’t start to phase out until income hits $200,000 for single filers and $400,000 for married couples.
For families that earn too little to owe tax, the bill also made up to $1,400 of the credit refundable.
Yet like other elements of the tax bill that go to individual families, the increased child credit — and the increase in the refundable portion of it — are set to expire in 2026. In addition, to receive the child credit, parents will now have to provide their children’s Social Security numbers.
Rubio had threatened to vote against the bill without a sweetened tax credit for lower-income working families. Republicans needed his vote.
So Rubio won a latestage concession to increase the portion of the child credit that would be refundable for households that owe no income tax.
The compromise tax bill does make more families eligible for the credit. And it increases its size. Yet it fails to provide much help for lower-income families, says ChyeChing Huang of the CBPP.
Because of how rules covering the credit’s refundability are written, Huang expects about 10 million children among the lowest-income working families to receive a token increase of up to $75 per family —or no increase at all. That is because the refundable portion of the credit doesn’t kick in until a family has income of $2,500. For each additional dollar earned, a family receives a refundable credit worth 15 cents until it reaches its maximum credit of $1,400. But some families won’t come close to that threshold, Huang said.
Additionally, the benefit of the child credit will be eroded for some families by the tax bill’s elimination of personal exemptions.