February 2014

Making Children Visible in Connecticut's Tax Code

Matthew Santacroce

This issue brief from the Fiscal Policy Center at Connecticut Voices for Children identifies a feature of the Connecticut tax system that effectively penalizes households with children, relative to households without kids. Across the country, nearly all states that have enacted an income tax have also enacted some form of tax exemption, deduction or credit to offset the costs of raising children.  Connecticut has not.  As a result, a two-parent family with three children pays virtually the same amount in state income tax as a couple earning the same amount with no children,  even though households with children spend far more on food, clothing, health care and other necessities and have far less disposable income. Connecticut Voices for Children proposes a new state child tax credit that would remove the existing child penalty, give an immediate boost to more than 400,000 low- and moderate-income families with children in Connecticut, and improve fairness in our tax code.

The issue brief establishes that:

  • Connecticut is virtually alone among states in not making tax adjustments for families with dependent children.  Among the 43 states with a personal income tax, Connecticut is one of only two that fails to offer a tax credit or exemption for dependent children.
  • Enacting a child tax credit would make a significant difference to hundreds of thousands of families across Connecticut.  The proposed child tax credit builds upon the federal child tax credit which was claimed by more than 400,000 Connecticut families in 2011 – and in total, was worth nearly $490 million.
  • A refundable tax credit would significantly benefit low and moderate income families with children.  The proposed tax credit is fully refundable for families with incomes greater than $9,667 – meaning that if the amount of the credit is greater than what they pay in taxes, they receive the balance as a refund. A refundable credit is dually effective, helping the low- and middle-income families who make up the majority of Connecticut tax filers. More than half of all tax filers claiming the federal child tax credit reported adjusted gross income below $50,000 in 2011, while larger families with somewhat higher incomes claimed the greatest average credit amount.
  • Enacting a child tax credit would further align our tax code with New York State’s.  New York’s Empire State Child Credit is figured as a percentage of the federal credit, making it relatively easy to implement. A refundable Nutmeg State Child Credit pegged at 33 percent of the federal credit, the same level as New York's credit, would increase net income by more than $117 million for qualifying families (based on 2013 income estimates) with minimal administrative costs associated with implementation.
Issue Area:
Budget and Tax