Fiscal Fact No. 11
When Congress created the child tax credit in 1997, it limited the full value of the credit to single taxpayers earning up to $75,000 per year or married couples earning up to $110,000. For taxpayers with incomes above these thresholds, the credit phased out at a rate of $50 for every $1,000 of income above the threshold. This means that the current $1,000 child credit is fully phased out at $95,000 of income for single taxpayers and $130,000 of income for married couples.
The House of Representatives is currently considering legislation that would increase the income threshold at which the credit begins to phase out to $125,000 for single taxpayers and $250,000 for married couples.
Using the TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation’s Individual Tax Model and Matched IRS/Census Database, Foundation economists were able to build a basic demographic profile of the 4.6 million American taxpayers – representing nearly 18 million persons – who would benefit if the phase out thresholds for the child credit are increased. The data shows that these taxpayers are overwhelmingly married, young, and, most likely, dual income.
If the value of the phase out threshold for the child credit is increased in 2005, these 4.6 million families will see an average tax cut of $1,877, or 9 percent of their current tax bill. Table 1 shows the current average tax liability for these taxpayers in various income ranges and the average tax cut that those taxpayers will get next year if the threshold is increased. The overwhelming majority of these taxpayers earn between $100,000 and $200,000 per year.
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Table 1More than 80 Percent of the 4.6 Million Taxpayers Who Would Benefit from the New Threshold Level Earn Between $100,000 and $199,999 |
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IncomeRange |
Percentage of 4.6 Million Taxpayers in each Income Range |
Average Current Tax Liability for These Taxpayers |
Average Tax Cut for These Taxpayers |
Tax Cut as a Percentage of Current Liability |
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$0 to $49,999 |
0.00% |
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$50,000 to $74,999 |
0.64% |
$6,731 |
$1,509 |
22% |
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$75,000 to $99,9999 |
7.17% |
$10,215 |
$1,529 |
15% |
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$100,000 to $199,999 |
81.06% |
$18,438 |
$1,909 |
10% |
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$200,000 to $499,999 |
11.13% |
$38,123 |
$1,896 |
5% |
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Source: Tax Foundation Individual Tax Model |
Table 2 shows that the vast majority of these 4.6 million taxpayers are in the prime of their working years, between the ages of 35 and 54. Nearly 43 percent of these taxpayers are between the ages of 35 and 44, the typical age range for families raising young children. The percentage of taxpayers who will benefit from the higher threshold shrinks slightly in the 45 to 54 age group because the credit only applies to children under 17.
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Table 2Nearly 83 Percent of Taxpayers Who Benefit from the Higher Phase-Out Threshold Are in the Prime of their Working Years |
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Age Range |
Percentage of 4.6 Million Taxpayers within each Age Range |
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25 – 34 |
11.4% |
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35 – 44 |
42.9% |
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45 – 54 |
39.7% |
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55 and above |
5.9% |
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Source: Tax Foundation Individual Tax Model |
Tables 3 and 4 show that the taxpayers who will benefit from the expanded phase out thresholds are mostly married, full-time workers. Table 5 shows that nearly 74 percent of these taxpayers work in some type of professional occupation such as management or sales.
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Table 3Nearly All Beneficiaries Are Married Couples |
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Marital Status |
Percentage of 4.6 Million Taxpayers Who Are Married or Single |
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Married |
91.8% |
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Single or Head of Household |
8.2% |
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Source: Tax Foundation Individual Tax Model |
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Table 4 Nearly All Beneficiaries Work Full Time |
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Work Status for Major Wage Earner |
Percentage of 4.6 Million Taxpayers in Each Work Status |
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Full-Time |
88% |
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Part-Time |
12% |
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Source: Tax Foundation Individual Tax Model |
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Table 5 Most Beneficiaries Are Working Professionals |
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Occupation |
Percentage of 4.6 Million Taxpayers in Each Work Status |
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Executive, administrative & managerial |
32.7% |
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Professional specialty |
29.2% |
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Sales |
11.8% |
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Other |
26.4% |
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Source: Tax Foundation Individual Tax Model |
These husbands and wives work across all sectors of the economy, public and private. Table 6 displays basic information about where they work. While the majority works in the private sector, nearly 19 percent are government workers – state, local, or federal – and about 11 percent are self-employed.
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Table 6 Beneficiaries of a Higher Threshold for the Child Credit Work in All Sectors of the Economy |
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EconomicSector |
Percentage of 4.6 Million Taxpayers by Economic Sector |
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Private Sector |
60.2% |
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Government |
18.8% |
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Self-Employed |
10.8% |
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Other |
10.2% |
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Source: Tax Foundation Individual Tax Model |