Child tax credit

A child tax credit is a tax credit available in some countries, which depends on the number of dependent children in a family. The credit may depend on other factors as well, such as income level. For example, in the United States only families making less than $110,000 per year may claim the full credit. Similarly, in the United Kingdom the tax credit is only available for families making less than £42,000 per year.

Germany has a programme called the "Kinderfreibetrag" () which functions as a tax credit. The child allowance is an allowance in German tax law, which a certain amount of money is tax-free in the taxation of parents. In the income tax fee paid, child benefit and tax savings through the child tax credit are compared against each other, and the parents pay whichever results in the lesser amount of tax.

In the United Kingdom, a family with children and an income below about £32,200 can claim child tax credit on top of child benefit. The tax credit is "non-wastable" – it is paid whether or not the family has a net tax liability – and is paid in or out of work. Higher rates are paid for disabled children. It is integrated with the working tax credit, which also provides support for childcare costs.

All taxable income is tested for the credit, so a couple who both work and have children, will have both salaries taken into account. Tax Credits may be capped which it is claimed could affect the poorest families disproportionately. On Monday 26th October 2015 the House of Lords voted for Labour proposals for financial redress to those affected by reduced entitlements.

There are several different credits that a taxpayer can claim in the United States. One of the most common is the Child Tax Credit, provided by 26 U.S.C. Sec. 24. After $110,000 it phases out at the rate of $50 for each additional $1,000 (or portion of $1,000) earned above $110,000.

For a relatively small number of families, the child tax credit will exceed their tax liability. In many such cases, the unused portion of the child tax credit is refundable as the "additional child tax credit." The amount that is available as a refund depends on the amount of earned income, and in certain circumstances the amount of social security and medicare taxes paid. Refer to IRS form 8812 and instructions.

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