The Child Tax Credit (CTC) is an essential tool for enhancing the economic security of many families in the United States, particularly those with low and middle incomes. This tax credit allows parents to reduce their tax burden, and in many cases, receive a refund that helps them cover the costs associated with raising children.
In recent years, state lawmakers have started expanding their own CTC programs, recognizing that this policy not only reduces child poverty but also fosters economic stability in the most vulnerable households.
What is the Child Tax Credit and why is it so important?
The federal Child Tax Credit currently offers up to $2,000 per child under 17, which can make a significant difference in many families’ incomes. However, this credit has crucial limitations that leave out families with the lowest incomes. The requirement for a minimum income level and the fact that the credit is not fully refundable mean that many of the poorest families cannot access the full benefit.
As it stands, the federal CTC requires families to earn at least $2,500 annually to start receiving the credit, and only a portion of the credit is refundable as a refund.
This situation excludes a large number of children living in families below the poverty line. This is why many states are starting to implement their own Child Tax Credit programs, with the aim of filling these gaps and ensuring that more families can access this kind of support.
How states are taking the lead
By fiscal year 2025, 15 states and the District of Columbia will have implemented their own Child Tax Credit programs, most of which are specifically designed for low-income families. Many of these credits are fully refundable, meaning even families who owe no taxes will be able to receive the full benefit as a refund.
This represents a significant shift in how child poverty is being addressed in the United States. By ensuring that the poorest families receive the full credit, these state programs are helping to reduce child poverty rates considerably. Additionally, these types of policies help stabilize family incomes, lowering the likelihood that they will face emergencies preventing them from covering basic needs such as housing, food, or services.
The impact of the Child Tax Credit on reducing child poverty
One of the most notable examples of the effectiveness of Child Tax Credits was the temporary expansion implemented in 2021 through the American Rescue Plan Act (ARPA). During that year, the federal CTC increased to $3,000 per child over six years old and $3,600 per child under five. Additionally, the option of monthly payments was introduced, instead of receiving the credit in one lump sum annually, allowing families to manage their income and expenses more effectively throughout the year.
This expanded version of the CTC reduced child poverty by 46%, lifting 3.7 million children out of poverty. However, this temporary program ended in 2022, leading to a backslide in these gains. Currently, millions of children, particularly those from Black and Hispanic families, are no longer receiving the full credit, causing child poverty rates to increase again.
Designing an effective CTC
For the Child Tax Credit to be truly effective, it must be well-designed. A well-structured CTC should be fully refundable and available to all families, regardless of their income level. This would ensure that the lowest-income families are not excluded from the program, as is the case with the current federal version.
Furthermore, state lawmakers must consider the growing economic inequality and how it disproportionately affects families of color.
Tax policies that fail to consider this reality may inadvertently widen the inequality gap. On the other hand, a Child Tax Credit designed to benefit the most vulnerable families, regardless of race or ethnicity, can be a powerful tool for reducing child poverty nationwide.
The future of the Child Tax Credit in the United States
The success of the expanded Child Tax Credit in 2021 has shown that this type of policy can have a profound and lasting impact on families’ lives. Although ARPA’s temporary version is no longer in effect, it has laid the groundwork for state lawmakers to continue moving forward with their own CTC programs.
As more states consider creating or expanding their Child Tax Credit programs, it will be crucial for legislators to pay attention to the lessons learned from the federal experience. By making credits fully refundable and accessible to all families, states can contribute to creating a more equitable society where every child has the same opportunities to thrive.
