Child tax credit expansion

Child tax credits (CTC) are offered to eligible families with children under 17 years of age. The federal CTC varies in amount based on income and number of children and is partially refundable if the credit is higher than the taxes owed; the refundable portion is called the additional child tax credit. In 2017, the federal CTC is equal to 15% of income above $3,000, with a maximum of $1,000 per child, so families that earn less than $3,000 are not eligible. In 2017, an estimated 10.4 million children from low income working families did not receive the full value of the CTC (TPC-Maag 2017). Some state governments also offer CTCs. Similar to the federal CTC, state eligibility and refund amounts vary by income and number of children. The CTC could be expanded through increasing eligibility age (e.g., to families with 17 and 18 year old children), increasing the credit amount, making the credit fully refundable, or creating a fully refundable supplement for families with young children.

Expected Beneficial Outcomes (Rated)

  • Reduced poverty

  • Increased employment

Other Potential Beneficial Outcomes

  • Increased academic achievement

Evidence of Effectiveness

Expanding refundable tax credits for working families, such as the child tax credit (CTC), is a suggested strategy to reduce poverty (CBPP-Sherman 2013, CDF 2015, NCCP-Hartig 2014, NBER-Hoynes 2016), particularly among young children from very poor families (CBPP-Marr 2016), and encourage work in low income families (CBPP-Marr 2015, Urban-Maag 2011). However, additional evidence is needed to confirm effects and determine optimal tax benefit amounts.

Available evidence suggests that the CTC can help reduce and alleviate poverty in the families that receive it (CBPP-Marr 2016, CBPP-CTC). When income eligibility was reduced from $11,500 to $3,000 in 2009, for example, over 70% of additional benefits went to families with incomes below $30,000 (NBER-Hoynes 2016). Eliminating the earnings threshold entirely would increase benefits for the poorest families (TPC-Maag 2016, NBER-Hoynes 2016).

Increases in the amount of tax credits received appear to improve test scores among children in families that receive the credits. Increased test scores are associated with a variety of positive outcomes in adulthood, such as an increased likelihood of attending college and higher earnings (Chetty 2011).

A 2015 report projects that making the child tax credit fully refundable would reduce child poverty by 12% (1.3 million children), with the greatest benefit among black and white children, and families with no working adults. Making the credit fully refundable would cost approximately $12.4 billion (CDF 2015).

Impact on Disparities

Likely to decrease disparities

Implementation Examples

The federal child tax credit amount doubled in 2001 and 2003, and the credit was made partially refundable; the 2013 American Taxpayer Relief Act made these changes permanent (CBPP-CTC). The America Recovery and Reinvestment Act (ARRA) of 2009 temporarily lowered the minimum eligible income from $12,950 to $3,000 and the change was made permanent in 2015 (NBER-Hoynes 2016).  It is estimated that in 2017, the CTC will provide 35 million families with children with an estimated $52 billion in benefits with only about 20% of those funds going to the poorest families (TPC-Maag 2017).

California, Colorado, New York, North Carolina, and Oklahoma have state child tax credits; Colorado and New York’s credits are refundable (TCWF-State tax credits).

Implementation Resources

IRS-CTC - Internal Revenue Service (IRS). Child Tax Credit Publication 972.

Citations - Evidence

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Urban-Maag 2011 - Maag E, Rennane S, Steuerle CE. A reference manual for child tax benefits. Washington, DC: Urban Institute; 2011:Discussion Paper No. 32.

CBPP-Sherman 2013 - Sherman A, Trisi D, Parrott S. Various supports for low-income families reduce poverty and have long-term positive effects on families and children. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2013.

Chetty 2011 - Chetty R, Friedman JN, Rockoff J. New evidence on the long-term impacts of tax credits. Washington, DC: Statistics of Income (SOI), Internal Revenue Service (IRS); 2011.

CBPP-CTC - Center on Budget and Policy Priorities (CBPP). The Child Tax Credit. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2014.

CDF 2015 - Ending child poverty now. Washington, DC: Children's Defense Fund (CDF); 2015.

NCCP-Hartig 2014 - Hartig S, Skinner C, Ekono M. Taxing the poor: State income tax policies make a big difference to working families. New York: National Center for Children in Poverty (NCCP); 2014.

CBPP-Marr 2015 - Marr C, Huang CC, Sherman A, DeBot B. EITC and child tax credit promote work, reduce poverty, and support children's development, research finds. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2015.

CBPP-Marr 2016 - Marr C, Cho C, Sherman A. A top priority to address poverty: Strengthening the child tax credit for very poor young children. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2016.

NBER-Hoynes 2016 - Hoynes H, Rothstein J. Tax Policy toward Low-Income Families. National Bureau of Economic Research (NBER). 2016: Working Paper 22080.

TPC-Maag 2016 - Maag E, Ramirez E. Reforming the child tax credit: An update. Washington, DC: Urban-Brookings Tax Policy Center (TPC); 2016.

Citations - Implementation Examples

* Journal subscription may be required for access.

CBPP-CTC - Center on Budget and Policy Priorities (CBPP). The Child Tax Credit. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2014.

TCWF-State tax credits - Tax Credits for Working Families (TCWF). State tax credits.

NBER-Hoynes 2016 - Hoynes H, Rothstein J. Tax Policy toward Low-Income Families. National Bureau of Economic Research (NBER). 2016: Working Paper 22080.

TPC-Maag 2017 - Maag E. Refundable credits: The earned income tax credit and the child tax credit. Washington, DC: Urban-Brookings Tax Policy Center (TPC); 2017.

Date Last Updated

Jul 26, 2017