Congress gave taxpayers good news when it permanently extended various expired tax provisions at the end of last year (Consolidated Appropriations Act, 2016 (the Act), P.L. 114-113). This permanency gives taxpayers and practitioners a better ability to plan for these tax breaks without the annual worry of wondering whether they will be extended and for how long.
Child Tax Credit:
Sec. 24 provides a $1,000 tax credit to a taxpayer whose income is below certain thresholds for each of the taxpayer’s qualifying children under age 17. The credit is generally nonrefundable, meaning that the credit cannot exceed the taxpayer’s tax liability. How- ever, Sec. 24(d) makes portions of the credit refund- able. This refundable credit is commonly referred to as the additional child tax credit, and it is calculated using a percentage of the taxpayer’s earned income for the year (15% of the excess of taxable earned income over $3,000). A separate limitation applies to taxpayers with three or more qualifying children.
Before the new legislation, the $3,000 amount for calculating the refundable portion of the credit was scheduled to increase to $10,000, adjusted for inflation, in 2018. Now, the threshold amount for determining whether a taxpayer is eligible for the refundable (or additional) Sec. 24 child tax credit is permanently set at $3,000 (not indexed for inflation), which has been the threshold since 2009.