Expanded child tax credit may not be as generous as it seems

January 28, 2018 at 1:00 a.m. | Updated January 28, 2018 at 1:21 a.m.

by SARAH SKIDMORE SELL

A 1040 tax form appears on display, Tuesday, Jan. 10, 2017, in New York. The IRS is delaying tax refunds for millions of low-income families as the agency steps up efforts to combat identity theft and fraud. Starting in 2017, a federal law requires the tax agency to delay refunds until Feb. 15 for people who claim the earned income tax credit and the additional child tax credit. The IRS says processing times will delay most of the refunds until the end of February. (AP Photo/Mark Lennihan)
A 1040 tax form appears on display, Tuesday, Jan. 10, 2017, in New York. The IRS is delaying tax refunds for millions of low-income families as the agency steps up efforts to combat identity theft and fraud. Starting in 2017, a federal law requires the tax agency to delay refunds until Feb. 15 for people who claim the earned income tax credit and the additional child tax credit. The IRS says processing times will delay most of the refunds until the end of February. (AP Photo/Mark Lennihan)
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The child credit is designed to help working families offset some of the cost of raising children. Under current law, the credit lets households reduce their taxes by up to $1,000 for each child under their care. The tax overhaul doubled that credit to $2,000.

It also made more of the credit refundable. That means that if the credit lowers a family's tax liability below zero, they can still receive the balance of the credit in the form of a tax refund. And more people will now be eligible to claim the credit because the income level at which it phases out has been raised.

On the surface, this sounds like happy news for American families. Yet tax experts say the expanded child credit will actually provide little relief for some of the lowest-income families.

HOW IT WORKED UP TO NOW

A family can claim the credit for each child under 17 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 - as well as the average size of 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.

HOW THE CHANGES WILL WORK

The tax reform 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. Before Rubio had demanded an increase, the refundable portion in the Senate bill had been $1,100.

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. This requirement is intended to deny the child credit to people who are in the U.S. illegally.

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