Over the past decade, 11 states have introduced fully refundable child tax credits (CTC) to reduce childhood poverty and support families. Making these credits fully refundable was a key provision in ensuring they reach the lowest income families. However, the original credits had significant limitations. Since then, state lawmakers have sought to improve the design of these credits and address their shortcomings. One such reform is the Oregon Kids Credit, established in 2023. This program provides a $1,000 fully refundable credit per child under age six– for up to five children–for families earning up to $25,750 annually.
While the refundable structure has been effective in reducing child poverty, there is still room for improvement to better support low- and middle-income households in Oregon. One key concern is the program’s low phaseout threshold, which can unintentionally penalize full-time work. To address this, members of the Oregon State Legislature introduced Senate Bill 694 during the current session. This proposal aims to strengthen the credit’s effectiveness by expanding the number of eligible families and providing additional support per child.
Proposed reforms to Oregon’s Child Tax Credit
SB 694 would make three key changes to the Oregon Kid Credit. First, it would increase the maximum credit from $1,000 to $1,200 per eligible child. Second, it would raise the income limit for eligibility for the full credit from the current $25,750 to $35,000, making it accessible to more families. Third, it would effectively reduce the per child phaseout rate from 20% to 12% by doubling the phaseout range so families earning less than $45,000 would be eligible for at least a partial credit. Figure 1 illustrates the changes for a household with one young child.
Figure 1: Oregon kid credit for a household with one child under 6
The credit increase to $1,200 per child is a meaningful boost in financial assistance, particularly for families with multiple children.
The proposed changes are also a crucial step in balancing work incentives with family support. By raising the phase-out threshold from $25,750 to $35,000, the credit encourages labor market participation, ensuring that families are not immediately penalized if one parent works full-time at the state or local minimum wage. Additionally, implementing a more gradual phase-out facilitates a smoother transition off the credit as a family’s earnings rise, rather than experiencing an abrupt and potentially disruptive loss of benefits.
While the proposed changes improve the credit’s anti-poverty and pro-work impact, a significant marriage penalty remains. Under the current structure, married couples with combined incomes above $35,000 are ineligible for the full credit—even if each partner would qualify individually if they were single. As a result, low-income single parents would lose some or all of their credit if they married their low-income partner. The penalty arises because the income threshold for Oregon’s CTC is not doubled for married couples, unlike in many other provisions. Maintaining this phaseout structure risks unintentionally discouraging marriage or creating financial hardships for married couples. To address this structural flaw, policymakers should consider raising the income phaseout threshold for married couples to $70,000–double that of single or head of household filers.
Oregon is moving in the right direction
The proposed changes under SB 694 significantly strengthen the Oregon Kid Credit by increasing accessibility and supporting for working families. The higher income eligibility, increased per-child credit amount, and lower phaseout rate are all positive steps that will enhance the credit’s ability to reduce child poverty and support families in need.
Other states, including Massachusetts and New York, have made or are in the process of making similar improvements to their child tax credits. These efforts reflect a growing recognition of the importance of robust state-level child tax credits. While there is still room for improvement–such as addressing the persistence of the marriage penalty–the proposed reforms are a meaningful step towards modernizing the credit to better support Oregon’s working families.