The federal CTC was first enacted in 1997 and has been expanded multiple times over the past quarter century. Under current law, it is worth up to $2,000 per eligible child up to age 17. The existing program substantially reduces child poverty–it kept 2.3 million children above the poverty line in 2018–but its anti-poverty effects are limited due to rules that exclude millions of families:
The CTC has an earnings requirement. A family that earns less than $2,500 receives no credit, and families with low earnings receive only a partial credit.
The value of the credit is lower for families with low- or moderate incomes who don’t owe as much in federal taxes. Families are only eligible to receive a refund for the portion of the credit that exceeds their income tax bill, and the value of that refund is currently capped at $1,500 per child, far short of the $2,000 credit per child available to families with higher incomes. For example, a single mother with two children who earns $20,000 would receive roughly $1300 per child as a refund under current law.
Millions of children are excluded from the program because they do not have a Social Security Number.
Hundreds of thousands of children are excluded from the program because of complicated eligibility rules. Children who live with caregivers who are not a close relative or adoptive parent aren’t eligible for the federal CTC, nor are those who do not spend at least six months in a single household in a given year.
In all, about 19 million children in families with little or no earnings are excluded from the full value of the CTC due to earnings requirements alone. The CTC has the potential to dramatically reduce childhood poverty and food insecurity, but that potential will not be realized until eligibility for the program is substantially expanded. In the absence of federal action, states have an opportunity to step in and cut childhood poverty by providing credits to the children and families left behind by the federal program.
In 2021, Congress temporarily expanded the Child Tax Credit as a part of the American Rescue Plan Act (ARPA). The expansion made three key improvements to the program:
The maximum credit amount increased from $2,000 to $3,600 per child under age 6 and to $3,000 per child aged 6-17.
The credit became “fully refundable,” meaning children whose parents had low or no earnings could receive the full value of the credit.
Half of a family’s credit was paid out monthly over a six-month period and half when the family filed their 2021 taxes.
Thanks to the combined effects of these improvements, the expanded Child Tax Credit cut child poverty by 46 percent in 2021, according to Census Bureau data. The expansion kept about 2.1 million children above the poverty line and reduced differences in poverty rates between children of all races and ethnicities.
Unfortunately, the expanded CTC has been allowed to expire and the program reverted its pre-ARPA form in January 2022. Almost immediately after monthly CTC payments stopped, monthly child poverty rates snapped back to pre-ARPA levels. Without full refundability, an estimated 19 million children again receive less than the full credit, or no credit at all, because their families earn too little.
For more information on the effects of the expanded CTC and the need to make the expansion permanent, see our summary of recent CTC research.
Since the expiration of the expanded federal CTC, many states have moved toward adopting or expanding their own CTCs. Ten states currently have some form of child credit on the books to boost family incomes, and already in 2023, legislation has been introduced to create or expand CTCs in more than a dozen states. A list of state CTC bills introduced this year can be found here.
The state credits vary widely in terms of value and eligibility. In most states, the credits are refundable, meaning that taxpayers receive a refund for the portion of the credit that exceeds their income tax bill. In a few states, however, the credits are nonrefundable, meaning they cannot be accessed by families with low or moderate incomes who may have little state income tax liability.
Eligibility requirements also vary from state to state. Some states simply match federal eligibility requirements, while others place additional limits on the credit based on age or family income. Unlike the federal credit, most state credits are inclusive of immigrant families who claim children with Individual Tax Identification Numbers (ITINs) rather than only allowing Social Security Numbers.
These state efforts are a meaningful step toward filling in the gaps left by the expiration of the federal expanded CTC and ensuring the economic security of children across the country. For more information about how state lawmakers can reduce child poverty in their states by enacting and enhancing state Child Tax Credits, see this report from the Institute on Taxation and Economic Policy.