Child tax credit expansion

Evidence Rating  
Expert Opinion
Evidence rating: Expert Opinion

Strategies with this rating are recommended by credible, impartial experts but have limited research documenting effects; further research, often with stronger designs, is needed to confirm effects.

Health Factors  
Decision Makers

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 2022, the credit is $2,000 per child under the age of 17, is partially refundable up to $1,400, and begins to phase out when income is over $200,000 for a single parent ($400,000 for married couples). The federal CTC is limited to 15% of income above $2,500, so families that earn less than $2,500 annually are not eligible. There is also a nonrefundable $500 CTC available for other qualifying dependents1. It is estimated that 27 million children from eligible families did not receive the full value of the CTC in 20202. 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)

  • Reduced poverty

  • Increased employment

Other Potential Beneficial Outcomes

  • Reduce material hardship

  • Increased food security

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 families living in poverty6, 10, and encourage paid workforce participation by families with low incomes11, 12.

Available evidence suggests that the CTC can help reduce and alleviate poverty in the families that receive it10, 13. 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. Reducing the income thresholds of the CTC may increase the labor market participation of single mothers and may decrease childhood injuries and behavior problems14, 15. Eliminating the earnings threshold entirely would increase benefits for the poorest families9, 16.

An initial study of the temporary CTC expansion in 2021 suggests the child poverty rate dropped almost 4% (approximately 3 million children) between June and July 202117. Families with low incomes and families of color were more likely to report using the CTC payments to buy food, pay off debt and other bills, and pay for child care or education for their children, than families with higher incomes18, 19, 20. The expansion also appeared to increase food security for families with children that have low incomes17, 21, 22, and those headed by women of color20. When the expansion expired at the end of 2021, the child poverty rate immediately increased from 12% in December 2021 to 17% in January of 2022, shifting an estimated 3.7 million children back into poverty23.

A 2018 report suggests restructuring the CTC to be phased in with the first dollar earned, allowing the full amount to be refunded; then, 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 from families with low incomes, regardless of parents’ earnings, would cost an additional $2 billion per year6.

Equity Analysis

Potential to decrease disparities: Suggested by expert opinion

Expansion of the child tax credit (CTC) is a suggested strategy to decrease racial disparities in child poverty4, 17, 26. Experts suggest removing limits on CTC refundability could reduce child poverty by 40%, make 99% of Black and Hispanic children eligible for the full benefit, and could particularly benefit children in rural areas5, 26. It could also reduce poverty among families with 3 or more children, which are more likely to be Black and Hispanic, by at least a third27.

Under current CTC rules, 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. Additionally, 25% of all ineligible children are Black, despite representing only 14% of the child population26. Approximately 75% of white and Asian children are eligible for the full CTC, but only about 50% of Black and Hispanic children are26.

Available evidence from 2021’s temporary CTC expansion suggests those changes were not enough to measurably change disparities in poverty. Families with incomes of $25,000 or less, which are disproportionately families of color, were least likely to benefit from the CTC payments19, 23. Black and Hispanic children and children from the lowest income groups were still less likely to receive the credit than children from white families and families with higher incomes17, 19, 26, 28, and Black and Hispanic children were still disproportionately more likely to experience poverty than white children23. However, despite a limited impact on disparities, the temporary CTC expansion had reduced overall child poverty and the end of the expansion led to a 30% increase in children living in poverty, disproportionately affecting Black and Hispanic children23.

Historical Context

The child tax credit (CTC) was established in the 1997 Taxpayer Relief Act and structured as a non-refundable $500 per child credit to provide tax relief to middle- and upper-middle-income families. In 2001, the CTC was aligned with the Earned Income Tax Credit (EITC), increased to $1,000 per child, and made partially refundable. The refundable portion is referred to as the Additional Child Tax Credit (ACTC). The availability and amount of the credit was further expanded in 2008 and 2009 to increase the eligibility of households with lower incomes; the income threshold increased again in 201225 and the refundability threshold was permanently lowered to $3,000 in 201529.

In 2017, the Tax Cuts and Jobs Act (TCJA) doubled the child tax credit to $2,000, increased the refundable credit maximum to $1,400 per child, increased the income level at which the credit phases out, and reduced the threshold for the refundable credit. These changes are set to expire on December 31, 2025. The TCJA also instituted a temporary requirement that taxpayers provide the social security number for each child that they claim29.

The American Rescue Plan (ARP) Act of 2021 temporarily expanded the CTC for the tax year of 2021, increasing the credit to $3,000 per child ($3,600 for children under age 6), extending the credit to 17 year olds, and making the CTC fully refundable to all families, including those with low or no incomes. Additionally, half the total credit was paid out in monthly installments to recipients instead of a lump sum once a year25. The temporary expansion expired at the end of the 2021 tax year and reverted the CTC back to the temporary rules under the Tax Cuts and Jobs Act of 2018. If no further legislation is enacted before that act expires on December 31, 2025, the CTC will revert back to the rules under the American Recovery and Reinvestment Act of 2009 (ARRA), returning the credit to $1,000 per child, lowering the phase-out income levels, and maintaining the refundability threshold at $3,00029.

Equity Considerations

  • What child tax credit (CTC) value, at the state and federal levels, may be needed in your community to pull children out of poverty?
  • When rules and requirements are established for the tax credit; who is left out? How might expanding eligibility, such as to larger families, improve economic conditions in your community?
  • Who is successfully claiming and receiving the CTC in your community? What outreach strategies could be implemented to increase awareness among eligible individuals, especially individuals with disabilities, those with low or no English proficiency, etc.?
  • How can increasing access to the CTC help with community-building efforts?

Implementation Examples

The Tax Cuts and Jobs Act (TCJA) of 2018 doubled the maximum child tax credit (CTC) from $1,000 to $2,000 for children under age 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 levels24.

California, Colorado, Connecticut, Idaho, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oklahoma, and Vermont have state child tax credits; all but Idaho, Maine, and Oklahoma have made the CTC refundable25.

Implementation Resources

IRS-CTC - Internal Revenue Service (IRS). Interactive tax assistant: Is my child a qualifying child for the child tax credit?

Footnotes

* Journal subscription may be required for access.

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 Zheng 2020 - Zheng H, Starks B, Ellis J, O’Brien M, Elliott W. An examination of parental college expectations’ mediating role between children’s savings accounts and children’s educational attainment by income level. Sociology Mind. 2020;10(03):165-186.

15 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.

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 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.

18 Brookings-Hamilton 2022 - Hamilton L, Roll S, Despard M, et al. The impacts of the 2021 expanded child tax credit on family employment, nutrition, and financial well-being: Findings from the Social Policy Institute’s Child Tax Credit Panel (Wave 2). Washington, DC: Global Economy and Development, Brookings Institution; 2022: Working Paper #173.

19 Urban-Karpman 2021 - Karpman M, Maag E, Kenney GM, Wissoker D. Who has received advance child tax credit payments, and how were the payments used? Washington, DC: Urban Institute; 2021.

20 NWLC-Javaid 2021 - Javaid S, Tucker J. Women of color use their advance child tax credit to cover food costs. Washington, DC: National Women’s Law Center (NWLC); 2021.

21 Shafer 2022 - Shafer PR, Gutiérrez KM, Ettinger de Cuba S, Bovell-Ammon A, Raifman J. Association of the implementation of child tax credit advance payments with food insufficiency in US households. JAMA Network Open. 2022;5(1):e2143296.

22 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.

23 Parolin 2022 - Parolin Z, Collyer S, Curran MA. Absence of monthly child tax credit leads to 3.7 million more children in poverty in January 2022. Policy Brief Vol. 6, No 2. New York: Center on Poverty and Social Policy, Columbia University; 2022.

24 TPC-Maag 2018 - Maag E. Who benefits from the child tax credit now? Washington, DC: Urban-Brookings Tax Policy Center (TPC); 2018.

25 NCSL-CTC - National Conference of State Legislatures (NCSL). Child Tax Credit Overview 2022.

26 NBER-Goldin 2020 - Goldin J, Michelmore K. Who benefits from the Child Tax Credit? National Bureau of Economic Research (NBER). 2021: Working Paper 27940.

27 Curran 2021* - Curran MA. The efficacy of cash supports for children by race and family size: Understanding disparities and opportunities for equity. Race and Social Problems. 2021;13(1):34-48.

28 CLASP-Burnside 2022 - Burnside A, Fuller B, Zhang Q. Child tax credit: Key findings from July 2022 national survey. Washington, DC: Center for Law and Social Policy (CLASP); 2022.

29 CRS-Crandall-Hollick 2018a - Crandall-Hollick ML. The Child Tax Credit: Legislative history. Congressional Research Service (CRS) R45124; 2018.

Date Last Updated