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Currently, a taxpayer receives $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 earned income formula). The threshold dollar amount was to have been $12,050 for 2008, as indexed for inflation. However, for the 2008 tax year, the Emergency Economic Stabilization Act modifies the earned income formula for the determination of the refundable child credit to apply to 15% of earned income in excess of $8,500. For 2009, the earned income formula for the determination of the refundable child credit is 15% of earned income in excess of $12,550 (as indexed for inflation).
Observation: The change to $8,500 for 2008 is pro-taxpayer in that in can result in a larger credit than could have been the case had the figure been $12,050.
Families with three or more children may determine the additional child tax credit using the "alternative formula," if this results in a larger credit than determined under the earned income formula. Under the alternative formula, the additional child tax credit equals the amount by which the taxpayer's social security taxes exceed the taxpayer's earned income credit.
The Recovery Act modifies the earned income formula for the determination of the refundable child credit to apply to 15% of earned income in excess of $3,000 for tax years beginning in 2009 and 2010.
Return to American Recovery and Reinvestment Tax Act of 2009 overview page.
Posted: February 15, 2009