The CTC is available to working families with children. Taxpayers must have a qualifying child to be eligible for the credit.
Children: A "qualifying child" is someone who meets the program's age, relationship, residence, and support tests.
Age: Children must be younger than 17 at the end of the tax year.
Relationship: The child must be the taxpayer's child or stepchild (by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of those. If a parent does not claim the child for the tax credit, another relative who lives with the child most of the year may do so.
Residence: The child must live with the taxpayer for more than half the tax year. Exceptions may apply for children of divorced or separated parents, kidnapped children, temporary absences, and children who were born or died during the year.
Support: Children may not provide more than half their own support for the year.
Income: Only families that earn at least $3,000 can benefit from the CTC (see figure 2).
Anyone who meets these eligibility rules and has a valid Individual Taxpayer Identification Number may claim the CTC. This includes noncitizens.
Families receive a credit of up to $1,000 per qualifying child, calculated as 15 percent of earnings over $3,000 plus tax liability. The credit begins to shrink by 5 percent of adjusted gross income once earnings reach $75,000 for single parents or $110,000 for married couples (figure 2).
If the credit exceeds taxes owed, taxpayers can receive some or all of the balance as a refund, known as the additional child tax credit (ACTC) or refundable CTC. The ACTC is limited to 15 percent of earnings above a threshold that is indexed to inflation; the threshold was temporarily reduced to $3,000 in 2011 and 2012.
Less than 10 percent of CTC benefits go to families in the lowest income quintile. Roughly 80 percent of benefits go to families with incomes in the middle three income quintiles.