A starting point for policymakers to reform child tax provisions could be to simplify the definition of a child
Tax Policy Center
Tax credits and deductions provide substantial assistance to families with children at all income levels. However, the value of tax provisions varies sharply depending on how much the family makes, whether the parents work or are married, how many children they have, their kids’ ages, and whether they attend college. In our new guide, “A Reference Manual for Child Tax Benefits,” my Tax Policy Center colleagues Stephanie Rennane, Gene Steuerle, and I demystify the bewildering complexity of how families qualify for these subsidies and who benefits from each provision.
Child tax provisions phase in and out erratically (see graph). For instance, if you’re a single mother with two children who gets all of her income from wages, the value of tax credits and deductions rise rapidly and then plunge dramatically after your earnings hit about $25,000. The pattern of benefits is very different, however, for the largest child provisions—the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and dependent exemption.
TPC estimates that more than 20 million families claimed $53 billion in earned income credits on their 2010 tax returns. Most of the money went to low-income working families. (No work, no credit!) Benefits increase with wages to a maximum of $3,094 for families with one child, $5,112 for families with two children, and $5,751 for families with three or more children, and then phase out at higher earnings levels. An estimated 54 percent of benefits went to families with incomes in the lowest quintile (or fifth) of the income distribution, below about $12,000, and another 42 percent went to families in the second quintile with incomes below about $23,000.