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. The CTC could be expanded by increasing the credit amount, making the credit fully refundable, decreasing or eliminating the earnings threshold, or creating a fully refundable supplement for families with young children. In 2021, the American Rescue Plan temporarily expanded the federal CTC using several of these techniques, increasing the credit to $3,000 per child ($3,600 for children under age 6), extending the credit to 17 year olds, and made the CTC fully refundable to all families, including those with low or no incomes. When the temporary provision expires in 2022 the federal CTC will return to previous levels (a maximum of $2,000 per child under 17, and partially refundable up to $1,400), and income eligibility rules. The federal CTC is limited to 15% of income above $2,500, so families that earn less than $2,500 are not eligible. There is also a nonrefundable $500 CTC available for other qualifying dependents1. Prior to the temporary expansion, it is estimated 27 million children from eligible families did not receive the full value of the CTC2. Some state governments also offer CTCs. Like the federal CTC, state eligibility and refund amounts vary by income and number of children3.
Expected Beneficial Outcomes (Rated)
Other Potential Beneficial Outcomes
Reduce material hardship
Evidence of Effectiveness
Expanding refundable tax credits for working families, such as the child tax credit (CTC), is a suggested strategy to reduce poverty4, 5, 6, 7, 8, 9, particularly among young children from very poor families6, 10, and encourage paid workforce participation in low income families11, 12. 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 it10, 13. Initial studies of the temporary CTC expansion in 2021 suggest the child poverty rate dropped from 15.8% to 11.9%, or 3 million children no longer in poverty14, and low-income households with children had a 25% reduction in food insufficiency14, 15. When income eligibility was reduced from $11,500 to $3,000 in 2009 over 70% of additional benefits went to families with incomes below $30,0009. Eliminating the earnings threshold entirely would increase benefits for the poorest families9, 16. If the 2021 CTC expansion were made permanent it is estimated it would lift 2.2 million children from previously ineligible families out of poverty4.
Reducing the income thresholds of the CTC may decrease childhood injuries and behavior problems17.
Under the CTC rules in effect prior to 2021, differences in eligibility are stark. Children from households with the lowest incomes (the bottom 10%) are largely ineligible for the credit, and those in the bottom 30% are only eligible for a partial credit. Approximately 75% of white and Asian children are eligible for the full CTC, but only about 50% of Black and Hispanic children are. Additionally, 25% of ineligible children are Black, despite representing only 14% of the child population18. Removing limits on the CTC refundability could reduce child poverty by 40%, make 99% of Black and Hispanic children eligible for the full benefit, and would particularly benefit children in rural areas5, 18. Experts suggest implementing universal bank accounts to ensure all families could receive an expanded CTC, as 14% of Black families and 12% of Hispanic families do not have a bank account19.
A 2018 report suggests restructuring the CTC to phase in with the first dollar earned, allowing the full amount to be refunded, and, for families with young children under 6, phasing in the CTC at 50% rather than 15%. This proposal would increase benefits by around $12 billion per year; extending the full refund to all young children in low income families, regardless of parents’ earnings, would cost an additional $2 billion per year6.
Impact on Disparities
In 2021 the American Rescue Plan temporarily expanded the maximum child tax credit (CTC) from $2,000 to $3,000 per child ($3,600 for children under age 6), extended the credit to 17 year olds, and made the CTC fully refundable to all families, including those with low or no incomes. The increased credit begins to phase out at $112,500 ($150,000 if married) and is only for 202120. Experts estimate it would temporarily reduce the number of children in poverty by 4.1 million (over 40%) and could bring an additional 1.1 million children out of deep poverty21. If no action is taken before it expires, the CTC will return to the rules set by the Tax Cuts and Jobs Act of 20182. The Tax Cuts and Jobs Act of 2018 doubled the maximum CTC from $1,000 to $2,000 for children under 17 with $1,400 refundable and lowered the minimum eligible income to $2,500 from $3,000. It also created a non-refundable $500 CTC for other dependents and increased the income at which the credit phases out from $75,000 ($110,000 if married) to $200,000 ($400,000 if married). These changes will expire after 2025 unless they are extended, reverting to pre-2018 levels22.
California, Colorado, Idaho, New York, North Carolina, and Oklahoma have state child tax credits; Colorado and New York’s credits are refundable3.
IRS-CTC - Internal Revenue Service (IRS). Interactive tax assistant: Is my child a qualifying child for the child tax credit?
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1 TPC-Briefing book CTC - Briefing book: What is the child tax credit? Washington, DC: Urban-Brookings Tax Policy Center (TPC); 2020.
2 CBPP-Cox 2021 - Cox K, Marr C, Sherman A, Hingten S. If Congress fails to act, monthly Child Tax Credit payments will stop, child poverty reductions will be lost. Washington, DC: Center for Budget and Policy Priorities (CBPP); 2021.
3 TCWF-State tax credits - Tax Credits for Working Families (TCWF). State tax credits.
4 Urban-Acs 2021 - Acs G, Werner K. How a permanent expansion of the Child Tax Credit could affect poverty. Washington, DC: Urban Institute; 2021.
5 CBPP-Marr 2020 - Marr C, Hingtgen S, Cox K, Sherman A, Windham K. Expanding Child Tax Credit and Earned Income Tax Credit would benefit more than 10 million rural residents, strongly help rural areas. Washington, DC: Center for Budget and Policy Priorities (CBPP); 2020.
6 USPMFP-Greenstein 2018 - Greenstein R, Maag E, Huang C-C, Horton E, Cho C. Improving the child tax credit for very low-income families. US Partnership on Mobility from Poverty (USPMFP); 2018.
7 CDF 2015 - Ending child poverty now. Washington, DC: Children's Defense Fund (CDF); 2015.
8 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.
9 NBER-Hoynes 2016 - Hoynes H, Rothstein J. Tax policy toward low-income families. National Bureau of Economic Research (NBER). 2016: Working Paper 22080.
10 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.
11 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.
12 TPC-Maag 2011 - Maag E, Rennane S, Steuerle CE. A reference manual for child tax benefits. Washington, DC: Urban-Brookings Tax Policy Center (TPC); 2011:Discussion Paper No. 32.
13 CBPP-CTC - Center on Budget and Policy Priorities (CBPP). The Child Tax Credit. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2014.
14 Parolin 2021 - Parolin Z, Collyer SM, Curran M, Wimer C. Monthly poverty rates among children after the expansion of the Child Tax Credit. New York: Center on Poverty and Social Policy, Columbia University; 2021. Poverty and Social Policy Brief 20412.
15 NBER-Parolin 2021 - Parolin Z, Ananat E, Collyer SM, Curran M, Wimer C. The initial effects of the expanded Child Tax Credit on material hardship. National Bureau of Economic Research (NBER). 2021: Working Paper 29285.
16 TPC-Maag 2016 - Maag E, Ramirez E. Reforming the child tax credit: An update. Washington, DC: Urban-Brookings Tax Policy Center (TPC); 2016.
17 Rostad 2020* - Rostad WL, Klevens J, Ports KA, Ford DC. Impact of the United States federal child tax credit on childhood injuries and behavior problems. Children and Youth Services Review. 2020;109:104718.
18 NBER-Goldin 2020 - Goldin J, Michelmore K. Who benefits from the Child Tax Credit? National Bureau of Economic Research (NBER). 2021: Working Paper 27940.
19 Brookings-Klein 2021 - Klein A, Karaflos M. Universal bank accounts necessary for families to bank on Child Tax Credit. Washington, DC: The Brookings Institution; 2021.
20 Brookings-Jabbari 2021 - Jabbari J, Hamilton L, Roll S, Grinstein-Weiss M. The new child tax credit does more than just cut poverty. Washington, DC: The Brookings Institution; 2021.
21 CBPP-Marr 2021 - Marr C, Cox K, Hingtgen S, Windham K, Sherman A. American Rescue Plan Act includes critical expansions of child tax credit and EITC. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2021.
22 TPC-Maag 2018 - Maag E. Who benefits from the child tax credit now? Washington, DC: Urban-Brookings Tax Policy Center (TPC); 2018.
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