As the end of the 2023 tax season approaches, state officials are calling attention to a new tax credit that offers financial support to families with children under the age of 6.
In May 2022, Gov. Phil Scott signed the child tax credit, H.510, into law. Since then, the $40 million package — $32 million of which funds the tax credit directly — has been set aside to offer tax cuts to qualifying parents and guardians with young children.
Vermonters who have young children and make less than $125,000 of annual income — including those who make no income at all — are eligible to receive $1,000 per child in a refundable tax credit for the 2022 filing year. Filers who make up to $175,000 are eligible for partial credit.
When H.510 was finalized last year, House Ways and Means Committee Chair Janet Ancel, D-Calais, told VTDigger she believed the new child tax credit would be the “most significant (state-level) tax relief package we’ve been able to offer Vermonters.” Ancel did not run for reelection last year.
More than 34,000 children are expected to benefit from the tax credit this year, according to the state’s Legislative Joint Fiscal Office.
However, even as Vermont Tax Department officials promote the new credit, it faces a threat in the Legislature. The state Senate is already considering doing away with the credit to help pay for an expansion of child care subsidies. A proposal to cut the benefit, advanced by the Senate Finance Committee last Wednesday, still needs approval by the full chamber, after which it would likely face an uphill battle in the House.
Regardless of the outcome of that legislative debate, the credit remains available to families this filing season.
The U.S. Census Bureau in 2021 found that Vermont families with children under the age of 17 are more likely to experience poverty than families without children or with adult children. Advocates of the child tax credit say they hope the state assistance will provide needed relief to families facing economic hardship.
During the pandemic, increased federal child tax credits were shown to support significant declines in poverty nationwide. In 2021, the federal government’s extension of a $3,000 per child tax credit ($3,600 for children 5 or younger) supported a decline in poverty in Vermont from 9% to 7%, according to census data that tracked poverty rates from 2019 to 2021.
Stephanie Yu, executive director of the Public Assets Institute, a Montpelier-based public policy think tank, said that while the extension of the federal child tax credit in 2021 reduced child poverty dramatically, it was a temporary solution.
“We’d love to see (the current child tax credit) be bigger,” Yu said. “We’d love to see it go to all kids. Although, there’s no question that $1,000 makes a big difference.”
“There were certainly plenty of families experiencing economic insecurity before the pandemic, plenty of families struggling to meet their basic needs,” Yu said, “Even though there was some temporary support during the pandemic, those other needs haven’t gone away either. We really need ongoing (support).”
A brief issued by the Public Assets Institute calls refundable tax credits “an important tool for reducing child poverty and advancing racial, social, and economic justice.”
While the tax credit is currently available to anyone making under $125,000 per year— including those who make no income at all — many families with low earnings are not required to file tax returns and risk missing out on the credit.
State Tax Commissioner Craig Bolio is encouraging those who are eligible to file, regardless of income, in order to receive the credit.
“There are folks that may traditionally not have filed or needed to file that should consider it this year,” Bolio said. The credits “are all refundable, so that means that if the credit exceeds your liability, you get that money back,” he said.
According to the Department of Taxes, the average tax paid by income group in 2020 was $1,000 or less for taxpayers with an adjusted gross income of less than $50,000. The Joint Fiscal Office says this means that for filers with children under 6 who fall below this income level, the child tax credit is likely to reduce these Vermonters’ tax liability to zero.
Alongside the child tax credit, the Vermont earned income tax credit and the child and dependent care credit increased this year to 38% and 72% of the federal credit respectively. Bolio said families who qualify for the child tax credit might meet the requirements for all three.
The 2023 deadline for filing taxes is April 18.
Vermonters interested in claiming the child tax credit can visit tax.vermont.gov for more information.
Correction: An earlier version of this story incorrectly stated the percentages of federal credit that the Vermont earned income tax credit and the child and dependent care credit increased to this year.