CFED Assets & Opportunity Scorecard
The federal Child Tax Credit (CTC), which was created in 1997 and expanded in 2001 and 2009, is worth up to $1,000 per child and a portion is refundable, depending on family size and income. Through the federal Child and Dependent Care Tax Credit (CDCTC), families can claim up to $6,000 in qualified care expenses for two dependents per year, with the credit worth between 20 and 35% of these expenses (depending on family income).
CTCs and CDCTCs are designed to help working families offset the cost of raising children or caring for adult dependents or an incapacitated spouse. While some state CTCs and CDCTCs are partially refundable, in most states these credits are non-refundable. This means that if a family does not earn enough to owe federal taxes, it cannot benefit from the credit.
States can create their own Child Tax Credits and Child and Dependent Care Tax Credits that piggyback on the federal credits. Although state versions of these credits are often structured simply as a percentage of the federal credits, states can expand eligibility, adjust income thresholds, and design other features specifically targeted toward working families. For example, states can structure the CDCTC to encourage the use of higher-quality child care by offering a larger credit for families who enroll children in state-certified facilities.
Strength of State Policies: Child and Child Care Tax Credits
|Has the state enacted a CDCTC? 1||Has the state enacted a refundable CTC? 2|
|Is the credit|
|Refundable CTC?||Eligibility and credit amount|
|California 4||No||Eligibility - Available to all filers
Credit - $326/dependent for filers with income under $172,615 for individuals and $345,235 for married couples; the credit is reduced for higher-income filers
|Colorado 5||Yes||Eligibility - Only available for children 5 and younger
Credit - Calculated as a percent of the federal CTC and varies by income; 30% of federal CTC for incomes up to $25,000 for individuals and $35,000 for married couples filing jointly; 15% from $25,001 to $50,000 for individuals and $35,001 to $60,000 for married couples; and 5% from $50,001 to $75,000 for individuals and $60,001 to $85,000 for married couples
|District of Columbia||No||—|
|New York||Yes||Eligibility - Same as for federal CTC, but the child must be at least 4 years old; filer must have a federal CTC or have a federal AGI at or less than $110,000 for married couples filing jointly, $75,000 for individuals or $55,000 for married persons filing separately
Credit - Greater of 33% of the filer's federal CTC attributable to qualifying children or $100 multiplied by the number of qualifying children; $100 multiplied by the number of qualifying children if the filer did not claim the federal CTC but meets all eligibility requirements
|North Carolina 4||—||Eligibility - Federal AGI must be less than $100,000 for married couples filing jointly, $80,000 for heads of household, $60,000 for single filers, and $50,000 for married persons filing separately
Credit - $100 per child under 17 on the last day of the tax year
|Oklahoma 4 10||No||Eligibility - Income must be less than $100,000
Credit - 5% of the federal CTC
|South Carolina 12||No||—|
Notes on the Data
1. "Tax Credits for Working Families 50 State Resource Map," The Hatcher Group, July 2014. Accessed July 18, 2015. Note: "-" indicates that the data is not applicable because the state does not currently have a CDCTC.
3. Arkansas's refundable CDCTC is only available for care of a child under age six in an "approved child care facility." Arkansas has a separate nonrefundable credit with the same maximum payments.
4. California, North Carolina and Oklahoma have enacted non-refundable Child Tax Credits.
5. For tax years 2014 through 2016, filers with incomes below $25,000 and child care expenses may claim a refundable CDCTC even if they are not eligible to receive the federal CDCTC. The state's Child Tax Credit was enacted in 2013; however, it is only collectible when state revenues hit a certain limit. Revenues exceeded that level in 2015 and recipients will likely be able to collect the credit in 2016.
6. Eligible filers may claim either Iowa's CDCTC or the state's refundable Early Childhood Development Credit, but a filer eligible for both of these credits will typically find the state CDCTC more valuable. Beginning in tax year 2015, filers may claim the full amount of the state's CDCTC without regard to whether the federal credit was limited by the taxpayer's federal tax liability.
7. Louisiana's CDCTC is only refundable for filers with incomes up to $25,000.
8. Maine's CDCTC is only refundable up to $500.
9. Nebraska's CDCTC is only refundable for filers with incomes up to $29,000.
10. Eligible filers can claim either 20% of the federal CDCTC or 5% of the federal CTC, but not both.
11. While Oregon's CDCTC is not refundable, any unused value of the credit may be carried forward for up to five subsequent years to offset income tax liability.
12. South Carolina's CDCTC is based on eligible expenses, not the amount of the federal credit. Since the state does not vary the credit's percentage inversely with income, the credit does not target filers with the lowest incomes.
13. Vermont's CDCTC is only refundable for filers with incomes below $30,000 ($40,000 if married filing jointly).
14. While Virginia does not have a state CDCTC, it does have a deduction equal to the amount on which the federal CDCTC is based (not the value of the federal CDCTC).
How States Are Assessed
States receive credit for operating a CDCTC if they have enacted a law basing a state tax credit on the federal credit or by offering their own version of a tax credit which targets the same population and expenses. States receive credit for having a refundable CTC if filers are eligible for a refund when the value of their state CTC is greater than their income tax liability.
What States Have Done
Twenty-two states and the District of Columbia have enacted state Child and Dependent Care Tax Credits, eleven of which are at least partially refundable. Two states—Colorado and New York—have enacted refundable state Child Tax Credits. Three states—California, North Carolina and Oklahoma—provide a Child Tax Credit to filers; however, these are nonrefundable.
Eighteen states provide a Child and Dependent Care Tax Credit that is based on a percentage of the federal credit, with percentages ranging from 20% to 110% of the federal credit. Four states—Hawaii, New Mexico, Oregon and South Carolina—offer credits structured as a percentage of child care expenses eligible for the federal credit, but not as a percentage of the federal credit itself. Unlike the federal credit, these state credits are not explicitly targeted to lower-income families. Virginia offers a tax deduction based on child care expenses eligible for the federal credit.
CFED thanks Lauren Pescatore of The Hatcher Group for her input and expertise on this policy issue.