Today is June 21, which means it’s Child Tax Credit Awareness Day! Here are some fast facts about the program, which has become core to family and children-centered policy in the United States.
Fact 1: The Child Tax Credit is bipartisan
The Child Tax Credit first appeared in the Taxpayer Relief Act of 1997 as an initiative recommended by the bipartisan National Commission on Children. At the time, the idea of providing direct resources to households with children was picked up by conservatives as a non-bureaucratic way of supporting families. Progressives supported the reform, too, as an effective tool to prevent working families from being taxed into poverty. In the years since, the credit has been expanded by Democratic and Republican lawmakers alike, including as part of the Trump Administration’s Tax Cuts and Jobs Act.
Fact 2: Most families can now receive the full Child Tax Credit
Before the passage of the American Rescue Plan in early 2021, nearly 27 million children lacked access to the full Child Tax Credit because their parents earned too little to owe federal income taxes. The ARP changed that by making the full Child Tax Credit available to virtually all households with children, regardless of income. The reform also increased the credit to $3,600 per child under the age of six, and $3,000 per child ages six to 17.
The credit is now “fully refundable,” which means that families who earn too little to pay federal taxes are eligible to receive the full benefit. For example, a minimum wage worker with two kids under the age of six can now expect to receive $7,200 in child credits directly deposited into their bank account. As many of these families are not used to filing federal tax returns, the IRS has launched a Non-filer Sign-up Tool to make applying easy.
Parents who already filed this year’s taxes and folks who received stimulus payments can likely sit back and relax. The first half of payments will be dispersed in automatic monthly payments starting on July 15th, 2021, with the second half deposited as a lump sum at the end of the year. Those who are eligible who have not signed up by July 15th will receive any back payments necessary to ensure that they get their full benefit, including any stimulus payments they were supposed to receive. The IRS will also be launching a “change of circumstances” portal in August to let families update their information if they have a new child, a change in residence, a new bank for direct deposit, and more.
Fact 3: Receiving the Child Tax Credit does not impact your eligibility for other programs
The Child Tax Credit is not counted as income for determining eligibility for other programs. In particular, applying for and receiving the credit will not affect a family’s access to critical programs like UI, Medicaid, SNAP, SSI, SSDI, TANF, WIC, Section 8, or Public Housing.
The law expanding the Child Tax Credit also created a “safe harbor provision” to minimize the risk of first-time recipients having to repay payments made in error. In general, single filers with less than $40,000 in income qualify for the full “safe harbor” amount of $2,000. This means that an improper payment of up to $2,000 to this household would not have to be paid back. The safe harbor will allow low-income families to apply for the benefit with the confidence that they will not be on the hook for payments made in error, including excess payments caused by changes in the number of qualifying children.
Fact 4: The Child Tax Credit is pro-work
Recent research considered the effect of the Child Tax Credit on maternal labor supply. The headline finding: a $1000 increase in the average Child Tax Credit is associated with a 1.1 percentage point increase in labor force participation for single mothers.
The pro-work value of the Child Tax Credit will be surprising to those who believe direct income support for families necessarily reduces the incentive to work. However, these findings are consistent with previous research, both on child benefits and unconditional transfers more generally. The same research suggests the Child Tax Credit’s positive labor supply effect is driven by mothers whose youngest child is between 3 and 5 years old. This makes sense, as parents of preschool children are the most likely to face a clear tradeoff between working and staying home to care for their child. The Child Tax Credit lets these parents afford child care in whatever form they prefer, including through friends and family.
Fact 5: The Child Tax Credit is an investment in America’s future
The newly expanded Child Tax Credit is only for 2021, but President Biden is proposing to extend it as part of his American Families Plan. Making the expansion permanent should be a top priority, as programs like the Child Tax Credit are crucial to promoting economic mobility. In fact, the 2021 expansion is expected to cut the U.S. child poverty rate by 40 percent on its own. If not made permanent, over six million children with be thrown back into poverty in future years.
Child poverty rates are significantly higher in the United States than in other nations because of our historical under-investment in child benefits. For its part, estimates suggest the newly expanded Child Tax Credit will produce benefits worth eight times its cost through improved child health and wellbeing. As we’ve written before, the Child Tax Credit is effective precisely because it empowers families to spend flexible resources on what is best for their child. This makes the expanded Child Tax Credit a powerful investment in America’s future.