The Child Tax Credit
The third major provision of the federal tax system that relates directly to children is the Child Tax Credit. The CTC provides families a tax credit (which directly reduces the amount a family owes) of $1,000 for every child they have. This credit, like the EITC phases out for families about a certain income level. Unlike the EITC, however, the Child Credit is only partly refundable, meaning that if the credit exceeds the amount the taxpayer owes, he will not necessarily receive a refund check for the difference.
For our hypothetical family, the Joneses, who have two children, their Child Tax Credit amounts to $2,000. However, because of the combination of the Personal Deduction as well as the EITC, the Joneses already have reduced their income taxes to zero, plus they can expect a refund check for $1,620. Taking the child credit into account further aids the Joneses. Because of their particular family size and income, for them, the Child Credit is totally refundable which means that their refund check will increase by the amount of their CTC. In all, the Child Credit adds another $2,000 to their refund. The Jones’ neighbors, the Smiths, do not qualify for any benefit from the Child Credit, of course, because they have no children.
