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1 (April 6, 2006)

handle is hein.crs/crsmthabcmx0001 and id is 1 raw text is: Order Code RS21860 Updated April 6, 2006 CRS Report for Congress Received through the CRS Web The Child Tax Credit Gregg A. Esenwein Specialist in Public Finance Government and Finance Division Summary The child tax credit was enacted in 1997, as Congress addressed concerns that the income tax structure did not adequately reflect a family's reduced ability to pay taxes as family size increased. Subsequent changes in 2001, 2003, and 2004 increased the child tax credit and made it refundable for most families. These recent changes will sunset (expire) in 2011. The child tax credit is scheduled to decline from $1,000 in 2010 to $500 in 2011. Multiple bills affecting the child tax credit have been introduced in the 109th Congress. This report will be updated as legislative action warrants. Current Law For tax year 2005, families, below certain income levels, with qualifying children are allowed a credit against their federal income tax of $1,000 for each qualifying child. To qualify for the credit the child must be an individual for whom the taxpayer can claim a dependency exemption. That means the child must be the son, daughter, grandson, granddaughter, stepson, stepdaughter, or an eligible foster child of the taxpayer. The child must be under the age of 17 at the close of the calendar year in which the taxable year of the taxpayer begins. For families with one or two qualifying children, the credit is refundable to the extent of 15% of a taxpayer's earned income in excess of $10,750.1 (This earned income threshold is indexed annually for inflation.) For families with three or more children, the child tax credit is refundable to the extent that the taxpayer's Social Security taxes exceed the taxpayer's earned income tax credit or to the extent of 15% of their earned income in excess of $10,750, whichever is larger. The child tax credit is phased out for taxpayers whose adjusted gross incomes (AGIs) exceed certain thresholds. For married taxpayers filing joint returns, the phaseout begins 1 A refundable tax credit means that you receive the tax credit even if you do not have an income tax liability. For example, a taxpayer with $12,000 of earned income, a zero income tax liability, and one qualifying child would receive a refundable child tax credit of $188 (15% of $12,000 minus $10,750). Congressional Research Service 4- The Library of Congress

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