Pathways to Reduce Child Poverty: Impacts of Federal Tax Credits (2026)
Chapter: Appendix B: Key Terms
Appendix B
Key Terms
Additional Child Tax Credit (ACTC): The “refundable” or low-income part of the Child Tax Credit. If the Child Tax Credit exceeds what a family owes in federal income taxes, the ACTC is the part they receive as a tax refund.
Adjusted gross income (AGI): Total (or gross) income for the year minus specific deductions (also called adjustments). It forms the basis for calculating federal income tax and eligibility for various credits and deductions.
Aid to Families with Dependent Children (AFDC): A grant program established by the Social Security Act of 1935 that enabled states to provide cash welfare payments for needy children deprived of parental support or care because a parent was absent from the home, incapacitated, deceased, or unemployed.1 AFDC was replaced by Temporary Assistance to Needy Families in 1996.
Citizenship: A legal status and relationship between an individual and a state or nation. Citizenship is generally used as a synonym for nationality. U.S. citizens must have a valid Social Security Number.
Current Population Survey (CPS): A monthly survey conducted by the U.S. Census Bureau and the Bureau of Labor Statistics.
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1https://aspe.hhs.gov/aid-families-dependent-children-afdc-temporary-assistance-needy-families-tanf-overview#:~:text=Aid%20to%20Families%20with%20Dependent%20Children%20(AFDC)%20was%20established%20by,home%2C%20incapacitated%2C%20deceased%2C%20or
Current Population Survey Annual Social and Economic Supplement (CPS ASEC): An annual supplement to the Current Population Survey that collects data on health insurance coverage, work experience, income from all sources, receipt of noncash benefits, safety net program participation, and geographic mobility. The CPS ASEC is mostly administered in March of each year.
Dependent: A qualifying child or relative claimed on a filer’s tax returns. Under current tax rules, a dependent must be a U.S. citizen, resident alien, or national, or a resident of Canada or Mexico. A person cannot be claimed as a dependent on more than one tax return, with rare exceptions. A dependent cannot claim a dependent on their own tax return. A spouse cannot be claimed as a dependent if filing jointly. A qualifying relative is a member of the tax filer’s household who lives with the tax filer all year or a specific type of relative. A dependent must have no more than a certain amount of gross income and have received more than half their financial support from the tax filer.
Earned Income Threshold: The minimum earnings necessary to be eligible for the Child Tax Credit.
Economic Impact Payments: Direct relief payments administered during the COVID-19 pandemic in a series of three rounds.2
Elasticity: A measure of how certain quantities respond to changes in their prices. Economists and policy makers use estimates of labor supply elasticities to describe or understand how tax changes affect labor supply and, by extension, tax revenues and economic growth.
Exemptions: Circumstances or characteristics that are cleared from being eligibility considerations in meeting requirements.
Expanded Child Tax Credit: Refers to the temporary changes made to the CTC under the American Rescue Plan Act of 2021.
Extensive margin: Refers decisions about whether someone participates in work at all (for example, entering or leaving the labor force), rather than how many hours they work.
Income effects: Changes in labor supply driven by changes in income.
Intensive margin: Refers to changes in how much a person works—for example, increasing or reducing hours—rather than whether they work at all.
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2https://home.treasury.gov/policy-issues/coronavirus/assistance-for-american-families-and-workers/economic-impact-payments
Labor supply: Whether and how much individuals choose to work, which often responds to changes in financial incentives to work.
Lookback provision: A provision in the American Rescue Plan Act of 2021 that allowed people to use their 2019 earned income instead of their 2021 earned income to calculate the Earned Income Tax Credit or Additional Child Tax Credit on 2021 tax returns, if doing so made the credit larger. This helped individuals receive a larger credit if their income was reduced in 2021 due to unemployment or other reasons.3
Marginal tax rate: The amount of additional tax paid for every additional dollar earned as income.4
Microsimulation: Refers to models that simulate the effects of policies on the income, earnings, and program participation decisions of individual households by applying detailed program rules and behavioral responses to survey data.
Payroll tax: A tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and Unemployment Insurance. Payroll taxes comprise 24.8% of combined federal, state, and local government revenue, the second largest source of that combined tax revenue.5
Phase-in: The portion of the Earned Income Tax Credit, Child Tax Credit, or any other tax credit or income supplement schedule during which the credit amount increases as a worker’s earnings increase, up to a maximum benefit.
Phase-out: The portion of the Earned Income Tax Credit, Child Tax Credit, or any other tax credit or income supplement schedule during which the credit amount decreases as earnings rise above a certain threshold, until eligibility is fully phased out at a maximum income level.
Pre-ARPA nonexpanded Child Tax Credit: The version of the Child Tax Credit in effect before and after the temporary 2021 expansion under the American Rescue Plan Act of 2021 but not including the 2021 expansion.
Qualifying child: A child who meets specific criteria—such as relationship to the taxpayer, age, residency, support level, and citizenship status—that determine eligibility for tax benefits like the Earned Income Tax Credit or Child Tax Credit.
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3https://ttlc.intuit.com/turbotax-support/en-us/help-article/family-tax-credits-deductions/use-lookback-provision-maximize-earned-income/L1t7w7HOp_US_en_US
4https://taxfoundation.org/taxedu/glossary/marginal-tax-rate/
Refund limit: In the context of a partially refundable tax credit like the Child Tax Credit (CTC), the refund limit is the maximum amount that can be received as a refund when tax liability is zero. For the CTC, this refundable portion is known as the Additional Child Tax Credit.
Refundability: A feature of a tax credit that determines whether the credit can exceed a taxpayer’s income tax liability. A fully refundable credit provides the full amount even if the taxpayer owes no income taxes. A nonrefundable credit can only reduce tax liability to zero. A partially refundable credit allows some portion of the credit to be received as a refund if the taxpayer owes little or no tax.
Return to work: The increase in net potential earnings that a worker faces in the labor market for extra hours of work, especially after allowing for tax credits and income supports. When tax credits and supports depend on income, this can affect the net earnings associated with each hour of work. Tax credits and income supports that depend on having earned income generally raise the returns to work, while making such credits and income available to nonworkers generally reduces returns to work. All else equal, higher returns to work generally induce more labor supply, though whether and how much this occurs depends on individuals’ labor supply elasticities.
Substitution effects: Changes in labor supply driven by changes in the return to work, or the extra income an individual obtains from working relative to not working.
Supplemental Nutrition Assistance Program (SNAP): A federal program that helps low-income individuals and families buy nutritious food. It is administered by state agencies through local offices. Formerly known as food stamps.6
Tax liability: The total amount of federal tax owed to the government based on income, including wages and capital gains. It is calculated using tax brackets, which vary depending on income level and filing status.7
Tax relief: Any government program or policy designed to help individuals and businesses reduce their tax burdens or resolve tax-related debts. Examples include universal tax cuts, targeted programs that benefit specific groups of taxpayers, or initiatives like the Child Tax Credit or the Earned Income Tax Credit.8
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6https://www.ssa.gov/pubs/EN-05-10101.pdf
Temporary Assistance for Needy Families (TANF): A time-limited program that helps families when parents or other relatives cannot provide for the family’s basic needs. The federal government provides grants to states to run the TANF program.9 TANF replaced Aid to Families with Dependent Children in 1996.
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9https://www.hhs.gov/answers/programs-for-families-and-children/what-is-tanf/index.html
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