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. Beginning in 2018, the federal CTC for children under 17 is $2,000 and up to $1,400 can be received as a refund. It 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. In 2018, an estimated 29 million children from low income working 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. 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.
Expected Beneficial Outcomes (Rated)
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, particularly among young children from very poor families4, 9, and encourage paid workforce participation in low income families10, 11. 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 it9, 12. 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 $30,0008. Eliminating the earnings threshold entirely would increase benefits for the poorest families8, 13.
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 year4.
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 billion6.
Impact on Disparities
The American Rescue Plan of 2021 includes a temporary provision expanding the maximum child tax credit (CTC) from $2,000 to $3,000 per child ($3,600 for children under age 6), extends the credit to 17 year olds, and makes 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). This will 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 poverty14.
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 levels2.
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 TPC-Maag 2018 - Maag E. Who benefits from the child tax credit now? Washington, DC: Urban-Brookings Tax Policy Center (TPC); 2018.
3 TCWF-State tax credits - Tax Credits for Working Families (TCWF). State tax credits.
4 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. 2018.
5 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.
6 CDF 2015 - Ending child poverty now. Washington, DC: Children's Defense Fund (CDF); 2015.
7 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.
8 NBER-Hoynes 2016 - Hoynes H, Rothstein J. Tax policy toward low-income families. National Bureau of Economic Research (NBER). 2016: Working Paper 22080.
9 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.
10 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.
11 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.
12 CBPP-CTC - Center on Budget and Policy Priorities (CBPP). The Child Tax Credit. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2014.
13 TPC-Maag 2016 - Maag E, Ramirez E. Reforming the child tax credit: An update. Washington, DC: Urban-Brookings Tax Policy Center (TPC); 2016.
14 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.
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