Absent congressional action, the credit will revert to previous law, reducing the CTC’s maximum credit amount and income eligibility, and increasing the refundability threshold. However, these changes only apply through 2025. The TCJA also increased the income phaseouts, allowing more middle- and upper-income filers to claim the credit who were previously unable to do so, and lowered the refundability threshold. In 2017, the Tax Cuts and Jobs Act (TCJA) increased the maximum credit and refundability threshold, providing lower- and middle-income parents with an increased benefit for each eligible dependent. The CTC’s functional purpose is two-fold: first, reducing tax liability for parents with dependents, and second-in some cases-providing those parents with more disposable income for consumption and saving through a refund. Since its inception, the CTC has evolved into a multidimensional dependent tax benefit interacting with similar credits such as the Earned Income Tax Credit (EITC) and the Child and Dependent Care Credit (CDCTC). The Child Tax Credit (CTC) was created in 1997 as a financial support to families with children.
The combination and interaction of various child tax benefits-including the CTC, Earned Income Tax Credit (EITC), and Child and Dependent Care Tax Credit (CDCTC)-results in complexity, vagueness, duplication, and inefficiency for filers and the Internal Revenue Service (IRS).Nearly all of the poverty reduction from the income tax changes were experienced by families that have both workers and children. Specifically, the CRS estimates that the Tax Cuts and Jobs Act’s federal income tax rate changes reduced total poverty by 15 percent. The CTC, in combination with other refundable tax credits, is explicitly designed to benefit low-income families with workers and children and can significantly boost incomes and lift families above the poverty line, according to the Congressional Research Service (CRS).The maximum credit amount is reduced by 5 percent once adjusted gross income (AGI) reaches $200,000 for single filers and $400,000 for married filing jointly. If the credit is greater than the taxpayer’s liability, they may receive a refund up to $1,400 based on an earned income formula. Taxpayers may claim a maximum credit of $2,000 for each child, with a portion of the credit refundable.Like other tax credits, the CTC reduces tax liability dollar-for-dollar of the value of the credit. The Child Tax Credit (CTC) is a partially-refundable tax credit available to parents with qualifying dependents under the age of 17.