Child Tax Credit
Eligible taxpayers may claim a tax credit
(that is, a direct offset against income tax) for each qualifying
dependent child under age 17. For taxpayers whose tax liabilities
are not high enough to take full advantage of the credit,
the law allows a refund of any unused child tax credit.
The credit is refundable to the extent of 10% of the taxpayer’s
earned income in excess of $10,500 (in 2003; subject to
future inflation adjustments). In 2005, the refundable percentage
increases to 15% of excess earned income. (A special refund
rule applies to families with three of more eligible children).
The child tax credit may also be claimed against the alternative
minimum tax.
The child tax credit is phased out for
individuals with income over certain thresholds. The credit
is reduced by $50 for each $1,000 (or fraction thereof)
of modified adjusted gross income (AGI) over $75,000 for
single taxpayers or head of households, over $110,000 for
married persons filing jointly, and over $55,000 for married
persons filing separately.
Under the old law, an individual could
claim a child tax credit of up to $600 per child for 2003
and 2004, with the credit increasing in steps to $1,000
in 2010. The 2003 Act makes the $1,000 credit effective
for 2003 and 2004. After 2004, the credit amount for each
year will follow the old schedule, as shown in the table.
| Taxable Year |
Credit Amount per Child under Old Law |
Credit Amount per Child under 2003 Act |
| 2003-2004 |
$600 |
$1,000 |
| 2005-2008 |
$700 |
$700 |
| 2009 |
$800 |
$800 |
| 2010* |
$1,000 |
$1,000 |
| * The credit is scheduled
to revert to $500, beginning in 2011. Source: NPI |
The 2003 Act provides a major benefit for
those who claimed the child tax credit on 2002’s tax
return. Under the new law, the increased amount of the 2003
child tax credit (that is, up to $400 per child) will be
paid in advance, beginning in July 2003, on the basis of
information contained on each taxpayer’s 2002 tax
return (filed in 2003).
Example: Maria and Robert, who
reported adjusted gross income of $50,000 on their 2002
joint tax return, have two children (ages 5 and 7) for whom
they claimed a full child tax credit for 2002. In 2003,
Maria and Robert will receive an advance payment of $800-$400
for each child as a result of the new law.
