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Expanded child tax credit
A provision in the recently enacted “American Recovery and Reinvestment Act of 2009” (the 2009 economic stimulus act) expands the child tax credit for millions of children in low-income working families. Here are the details. Currently, a taxpayer receives a $1,000 tax credit for each qualifying child under the age of 17. To the extent the child credit exceeds the taxpayer's tax liability, the taxpayer is eligible for a refundable credit (the additional child tax credit) equal to 15% of earned income in excess of a threshold dollar amount. The threshold dollar amount was $8,500 in 2008. The new law increases the eligibility for the refundable child tax credit in 2009 and 2010 by lowering the threshold to $3,000. This means that working families with earnings above $3,000 may qualify for at least a partial credit. This change is significant because families with earnings just above the threshold qualify for a very small credit, because eligibility phases in slowly, at a rate of 15 cents per dollar of earnings above the threshold level. As a result, where the threshold is set has a large effect on families with incomes thousands of dollars above the threshold. For example, under the $8,500 threshold that applied for tax year 2008, a family with two children did not qualify for the full credit of $1,000 per child unless it had earnings of at least $21,833. Under the new law, such a family will qualify for the full credit when its earnings reach $16,333. As a result of the change under the new law, an estimated 2.9 million more children will qualify for the credit than would have qualified under last year's $8,500 earnings threshold, and an estimated 10 million children who would have received a partial credit under the $8,500 threshold will receive a larger one under the new legislation. IRS CIRCULAR 230 DISCLOSURE:
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