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Clinton offers bigger tax cut for families with children

The credits, rather than deductions, are more valuable

Democratic presidential nominee Hillary Clinton greets a young girl during a rally
Brendan Smialowski | AFP | Getty Images
Democratic presidential nominee Hillary Clinton greets a young girl during a rally

Hillary Clinton is proposing to expand the child tax credit.

The new provisions, which the Democratic presidential candidate announced on Tuesday, would direct more relief to families with younger kids. Her proposal would double the child tax credit to $2,000 per child under age 4.

Under current law, families with children aged 17 and under are eligible for a tax credit of $1,000 per child.

There are limits to the availability of the child tax credit: The benefit phases out if your modified adjusted gross income exceeds $75,000 for single filers or $110,000 for married taxpayers who file jointly.

Clinton's proposed tax credit is refundable. That means it not only reduces the amount of federal income taxes on a dollar-for-dollar basis; it can also result in a refund if you don't owe any money.

Further, she has proposed changing the tax code so families that earn less than $3,000 a year are eligible for the full credit.

This provision is particularly beneficial for low-income earners with very young children, as those individuals may only be able to work part time so that they can care for their kids.

"Right now, the child tax credit starts phasing in at $3,000," said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a Washington, D.C. think tank. "[Under the proposal], once you start working, after every dollar of wages earned, you get some of the tax credit."

Clinton has made child care a major focus in her campaign, proposing to cap child care family expenses at 10 percent of annual income.

Though Clinton's announcement didn't specify how much her proposal would cost, her campaign said "it will be fully paid for by her proposals to ensure the wealthy, Wall Street, and big corporations pay their fair share."

The cost is estimated at $150 billion to $200 billion over 10 years, according to a Clinton aide.

Donald Trump, the Republican candidate, has also proposed tax breaks for families, but in the form of deductions.

Trump has proposed allowing working parents to deduct child care expenses for up to four kids and elderly dependents. Further, he has also discussed allowing parents to sign up for tax-free dependent care savings accounts for their children.

For low-income families, he has proposed an "expanded earned income tax credit," plus a matching $500 contribution for their savings accounts.

Though both deductions and tax credits reduce the amount of federal income taxes you owe, they aren't the same. Deductions lower the amount of your income subject to taxes, while credits reduce the taxes owed.