What is a Family Tax Benefit?

In most countries, a family tax benefit is any preferential treatment given to families, either when they file their income tax returns or based on those returns. In some cases, as in the United States, taxpayers with children are given credits toward the taxes they owe, based on the number of children and their ages. In addition, American taxpayers with children are given special consideration for amounts spent on childcare and savings for education. Some Americans also deal with a negative family tax benefit: some married taxpayers, if their salaries are relatively equal, pay more income tax as a married couple than they would if they were single and filed separate returns.

Many nations use their tax policies to promote desirable social objectives. For example, in the United States, home ownership is promoted by permitting homeowners to deduct from their taxable income most costs associated with buying a home, plus the interest paid on any money borrowed to buy a home. Thus, many of the costs of home ownership are sheltered from taxation.

Likewise, many countries, including the US, permit families to shelter from taxes some of the costs associated with raising children. Taxpayers in the US, for example, are permitted to shelter a flat dollar amount of their income from taxation for every child in the household under a certain age. Taxpayers whose income is below a certain threshold are also entitled to “refundable tax credits” for each of their children; that is, after their tax liability has been calculated, it's reduced by an amount based on the number of children in the family. If their tax liability is reduced to $0, they owe no tax; if it's reduced below $0, they’re entitled to a refund of the amount their liability is below $0.

While the US family tax benefit program is conducted through the tax system and benefits are paid out at tax time, many other nations with family tax benefit plans pay their benefits out on a monthly basis, based on income tax returns filed by the families. Australia’s Family Tax Benefit program, for example, makes payments to families with children based on family income. It’s a fairly complex system, designed to provide a real benefit to legitimate recipients without providing a disincentive to work. Canada also makes such payments, but they’re variable from one province to the next. A second payment is made for disabled children in Canada.

In Europe, a complex social safety net is in effect in most countries, so that nearly all families with children can expect some sort of government subsidy. Some of these benefits, which vary from nation to nation, include bonuses upon a live birth or adoption, monthly payments until the child achieves a certain age or combination of age and education, special payments at the beginning of every school year, and special payments if one of the parents is conscripted into the military. These benefits travel with the family, more or less, so that they don't lose out if they travel beyond national borders.