WHO BENEFITS IF THE LEVEL AT WHICH THE CHILD
TAX CREDIT
BEGINS PHASING OUT IS RAISED TO $150,000?
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Some news accounts have conveyed the impression that under current law, the child tax credit is not available to married filers with incomes above $110,000, and that if the $110,000 threshold is raised to $150,000 as Senator Charles Grassley has proposed in recent days and as a new Senate bipartisan plan unveiled today would do, the credit will be made available to those in the $110,000 to $150,000 range. This is incorrect.
Under current law, $110,000 is the level at which the credit of $1,000 per child begins to phase down. It is not the level at which it phases out. (A couple’s total child credit drops $50 for each $1,000 by which its income exceeds $110,000.)
- A married couple with two children is now eligible for a partial child credit until its income reaches $149,000.
- A couple with three children receives some credit until its income reaches $169,000.
A new bipartisan plan would raise the $110,000 threshold to $150,000, something not included in the Administration’s budget or the House or Senate tax bills this year. If this is done, families with income well above $150,000 will benefit.
- A couple with two children will receive at least a partial child credit until its income reaches $189,000.
- A couple with three children will receive at least a partial credit until its income reaches $209,000.
|
Number of children |
Current law |
Proposal |
||
|
Credit begins to phase out at incomes of:* |
Credit phases out completely at: |
Credit begins to phase out at incomes of:* |
Credit phases out completely at: |
|
|
1 |
$110,000 |
$129,000 |
$150,000 |
$169,000 |
|
2 |
$110,000 |
$149,000 |
$150,000 |
$189,000 |
|
3 |
$110,000 |
$169,000 |
$150,000 |
$209,000 |
|
* Credit is reduced by $50 for each $1,000 of income above this threshold level. |
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It may be noted that the proposal to raise to $150,000 the level at which the child credit begins to phase down is not accompanied by a proposal to extend the credit to more working-poor families. Under a provision of the 2001 tax law, the size of the child credit for low-income families with earnings of more than $10,500 is slated to increase in 2005. A provision that was approved last month by the Senate but dropped in conference — and that has received much attention in recent days and is part of the new bipartisan proposal — would accelerate this scheduled increase in the size of the credit these families receive so it occurs in 2003. No new working-poor families, however, would be made eligible for the credit under this provision or under any other aspect of the new bipartisan plan. Families with earnings of up to $10,500 would remain ineligible.
As a result, many families with incomes in the $150,000 to $200,000 range would begin to receive the child credit, while families with a parent working full-time year-round at the minimum wage of $5.15 an hour would remain ineligible. Full-time minimum wage earnings amount to $10,300 a year.