Center for American Progress

An Expanded Child Tax Credit Would Lift Millions of Children Out of Poverty

An Expanded Child Tax Credit Would Lift Millions of Children Out of Poverty

Congress must not miss the opportunity to improve children’s lives and reduce economic and racial inequality.

President Joe Biden delivers remarks on the national economy and the need for his administration's proposed coronavirus relief legislation in the State Dining Room at the White House, February 5, 2021. Also pictured: Vice President Kamala Harris and Treasury Secretary Janet Yellen. (Getty/Stefani Reynolds-Pool)
President Joe Biden delivers remarks on the national economy and the need for his administration's proposed coronavirus relief legislation in the State Dining Room at the White House, February 5, 2021. Also pictured: Vice President Kamala Harris and Treasury Secretary Janet Yellen. (Getty/Stefani Reynolds-Pool)

Currently, nearly 11 million—or 1 in 7—U.S. children live in poverty.1 By that measure, the United States compares dismally with other wealthy countries. Children under age 5 experience higher poverty rates than older children.2 Living in poverty during these critical years for brain development has been shown to have significant negative effects on the long-term well-being of children.3 Moreover, children of color are disproportionately represented among children in poverty, reinforcing systemic inequalities, including racial wealth gaps. The harmful effects of child poverty exact enormous costs on America’s society and overall economy.

The COVID-19 pandemic has only exacerbated these issues. Millions of parents and caretakers have lost their jobs. Worsening the situation, as schools have closed and switched to remote learning, many parents have been forced to leave their primary occupations to provide child care. As a result, over the course of the pandemic, the share of children living with unemployed parents has reached historic highs.4 At the pandemic’s peak in April 2020, more than 21 percent of children had at least one parent who was unemployed. This is likely to have a disastrous impact on child poverty in the United States. Indeed, early studies have already indicated that the child poverty rate has substantially increased since the onset of the pandemic.5

Thankfully, Congress now has the opportunity to take a historic step forward in reducing child poverty by increasing the child tax credit (CTC) and making it available in full to the families that need it most. As part of his American Rescue Plan,6 President Joe Biden has urged Congress to dramatically expand the child tax credit for 2021, including making it fully refundable—meaning that low-income households would receive the full, larger benefit. The proposed changes to the CTC are based on the American Family Act (AFA), legislation sponsored by Reps. Rosa DeLauro (D-CT) and Suzan DelBene (D-WA) and Sens. Michael Bennet (D-CO) and Sherrod Brown (D-OH), that gained the support of nearly all Democratic members of Congress in past sessions.7 The AFA built upon a proposal put forward in 2015 by the Center for American Progress.8 And now the AFA’s changes have been incorporated into the American Rescue Plan currently moving through Congress—specifically, the tax components of the fiscal year 2021 budget reconciliation bill.9 The legislation does the following:

  • Takes the transformative step of making the credit fully refundable
  • Increases the basic amount of the CTC from $2,000 to $3,000 per child and provides an additional $600 for children under age 6, with those additional amounts phasing down above incomes of $112,500 for single parents and $150,000 for couples
  • Includes 17-year-olds in the CTC for the first time
  • Directs the IRS to make advance payments of the CTC in monthly installments beginning this July, so that struggling families do not have to wait until next year’s tax filing season to benefit
  • Extends the CTC to Puerto Rico and other U.S. territories10

Monthly delivery of the CTC was a key element of the American Family Act, aimed at helping parents manage the continuous costs of child rearing even if they have fluctuating incomes.11

These CTC expansions would reduce child poverty in the United States by 45 percent, according to Columbia University’s Center on Poverty and Social Policy—lifting nearly 5 million children out of poverty.12 President Biden’s full COVID-19 American Rescue Plan, the other key elements of which are also incorporated into the FY 2021 budget reconciliation bill, would cut child poverty in half, according to the Columbia University researchers.13

This issue brief looks at the short- and long-term benefits of enacting these proposals for families and examines their effects on the economic recovery.

The child tax credit has always left the lowest-income families behind

The CTC was created by the Taxpayer Relief Act of 1997 to help families manage the additional costs of raising children.14 In its original form, the tax credit provided $400 per child to families and was nonrefundable—meaning that it could only reduce a family’s income tax liability and could not be paid as a refund if the family had no tax liability. As a result, the lowest-income families with children, who generally do not owe federal income taxes (though they bear many other kinds of taxes), were unable to access the tax credit. Since its enactment, the CTC has gone through several rounds of changes, increasing the maximum total benefit and allowing low-income families to receive a partial tax credit by making a portion refundable so long as their earnings exceed a specific threshold.15 But the CTC’s biggest flaw is that it is still only partially available, or not available at all, to the lowest-income families, who would benefit most from the additional cash transfers.

Why refundability matters

Many tax credits are nonrefundable, meaning that they can only reduce a taxpayer’s income tax liability. Refundable credits can be paid as refunds to the extent that the credit exceeds the taxpayer’s tax liability. In fact, most low-income families with children do not have any federal income tax liability, though they pay and bear the burden of payroll; sales; and other federal, state, and local taxes.

In its current form, the child tax credit is partially refundable. Although the current CTC is $2,000 per child, only up to $1,400 per child can be paid as a refund. Furthermore, the amount of the tax credit depends on one’s earnings. The credit “phases in” at 0.15 cents for every $1 earned above $2,500.

The most recent expansion of the credit was part of the 2017 Tax Cuts and Jobs Act, which doubled the maximum CTC from $1,000 to $2,000.16 The 2017 act allowed many more higher-income taxpayers to claim the credit by raising the phase-out threshold—the amount of annual income above which the amount of the credit begins to decline—from $75,000 per year for single filers ($110,000 for married filers) to $200,000 per year for single filers ($400,000 for married filers). The law also increased the amount of the credit that is refundable, but the changes were modest and provided little or no benefit to a large share of low-income households. The law increased the maximum amount of the CTC that can be refundable from $1,000 to $1,400 and slightly lowered the threshold for the earnings phase-in from $3,000 to $2,500. These changes amounted to very little for those at the very bottom of the income spectrum, who either saw no benefit at all or received an increase of just $75 per year.17 (see Figure 1)

Because the law failed to make the credit fully refundable, under its current iteration there are still around 27 million children under age 17 whose households don’t earn enough to receive the full credit.18 As a result, just 15 percent of the total benefits of the CTC were claimed by families making less than $30,000 in 2020.19 This structure results in disparities in who benefits from the credit: While three-quarters of white and Asian children are eligible to receive the entire CTC, only about half of Black and Hispanic children are able to receive the full benefit.20

Figure 1

Direct cash payments to low-income families significantly improve future outcomes

The economic devastation wrought by the COVID-19 pandemic made the CTC even more essential to low-income Americans. Direct cash payments to families, which were included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the form of one-time $1,200 payments, and the ongoing unemployment insurance increase have shed light on the cracks in social safety net programs during times of economic hardship. Despite millions of job losses, the poverty rate actually fell during summer 2020 because of CARES Act provisions, demonstrating the potency of direct payments and the importance of existing social welfare programs in reducing poverty.21 The CTC substantially reduces child poverty by supplementing the low earnings of families receiving the tax credit, who are more likely to have low-wage jobs, fewer benefits, and fewer work protections. However, the CTC could lift more children out of poverty if it were detached from the employment of the adults in their lives.22

Boosting a poor child’s family income early in their life has long-term beneficial effects on education, health, and even employment. A $3,000 increase in annual family income for children under age 5 translates into an estimated 19 percent earnings increase in adulthood.23 Providing families with additional income supports during a child’s early development has also been shown to have substantial benefits for future health and educational attainment.24 An analysis of Canada’s robust child allowance, for example, found substantial positive effects on test scores, as well as maternal, physical, and mental health, following the benefit’s expansion.25

Beyond improving children’s lives, reducing child poverty would have enormously positive macroeconomic impacts as well. The National Academies of Sciences, Engineering, and Medicine has estimated that child poverty exacts a cost of $800 billion to $1.1 trillion in lost economic output annually, suggesting that reducing child poverty is among the smartest investments we can make as a society.26

The Biden administration’s CTC proposal would lift millions of children out of poverty

The changes to the child tax credit in the American Rescue Plan fix the flaws in the existing CTC and would make a tremendous difference for tens of millions of children. As described above, the bill makes the CTC fully refundable so that it can reach low-income families and allow them to receive the full benefit, increases the maximum amount from $2,000 to $3,000, creates a $600 young-child supplement, makes 17-year-olds eligible, provides for monthly advanced payments, and extends the CTC to Puerto Rico and U.S. territories.

Figure 2

Taken together, these changes would massively benefit families and dramatically cut child poverty rates—moving more than 4 million children out of poverty and cutting in half the number of children in deep poverty, according to Columbia University estimates.27

Ensuring that the tax credit is fully refundable, however, is fundamental to achieving these outcomes. Merely increasing the value of the credit without removing its tie to earnings would greatly reduce the effect and continue to leave out millions of children in families that are most in need.

Black and Latino households would substantially benefit under the Biden plan

Expanding access to a direct-payment program such as the CTC would especially benefit Black and Latino households, who, on average, have substantially less in cash reserves than white families.28 In 2019, non-Hispanic white households held an average of $8,200 in cash reserves, while Hispanic households had an average of just $2,000 in reserves and Black households held just $1,500. (see Figure 3) The CTC can boost these households’ cash reserves, helping families avoid temporary cash shortfalls and ridding them of reliance on high-fee, short-term credit—such as payday loans.

Figure 3

Furthermore, data show that increasing the CTC to $3,000 for each child ages 6 and above and to $3,600 for each child younger than age 6—as proposed in the pending legislation29—would substantially benefit Black and Latinx families.30 The Center on Budget and Policy Priorities estimates that the proposed expansions would lift a total of 9.9 million children above or closer to the poverty line, including 2.3 million Black children, 4.1 million Latino children, and 441,000 Asian American children.31 These reforms would dramatically reduce the childhood poverty rate, cutting childhood poverty by 52 percent for non-Hispanic Black children and 45 percent for Hispanic children, according to recent estimates from Columbia University’s Center on Poverty and Social Policy.32

Figure 4

Expanding the CTC could help the United States recover from the recession and bring large returns over the long run

Implementing an expansion of the child tax credit would be a powerful way to immediately help millions of families who are currently struggling due to the COVID-19 pandemic. The CTC expansion for 2021 in President Biden’s rescue bill would cost an estimated $110 billion in 2021—a small fraction of the economic relief distributed so far.33 By contrast, the 2017 tax cuts, which were heavily weighted toward higher-income Americans, were estimated to cost more than $300 billion this year.34

Because the rescue bill would begin distributing the expanded CTC this year rather than in one lump sum at tax time next year, these provisions would provide timely and much-needed financial relief to families and help smooth volatile income streams. In 2021, families in the bottom quintile of the income spectrum would see their after-tax incomes rise by 9 percent, on average.35 This, in turn, would help speed the economic recovery, since low-income families are most likely to spend additional cash by purchasing goods and services; those purchases would provide income to other people and businesses, generating additional economic activity. (This is known as the “multiplier effect.”) Research has shown that during recessions, CTC expansion can provide particularly effective stimulus, generating as much as $1.50 in economic activity for every $1 spent.36 Moody’s Analytics recently estimated the revenue effects of Biden’s economic relief proposal and found that his plan to increase the CTC had a short-term fiscal multiplier of 1.25—meaning it would raise gross domestic product by $1.25 for each $1 spent during the first quarter of 2021.37 Moody’s Analytics estimated that increasing the earned income tax credit and child tax credit were the two tax policies with the biggest multiplier effects.

Though the most urgent priority is to provide cash to families this year, which is why the rescue bill provides for a one-year expansion, later this year Congress should make permanent the changes to the child tax credit—along with the earned income tax credit expansions. This would most likely happen as part of a larger investment package that should also increase taxes on high-income Americans and profitable corporations that have done well during the pandemic. Over the long run, investments to alleviate child poverty by increasing the child tax credit for low- and moderate-income families would produce vastly positive benefits, including increasing family income and dramatically improving economic mobility for children whose families receive the tax credit.

An increasing volume of research has shown that the United States has ample fiscal capacity to make smart and effective investments in human capital, which yield significant long-run returns.38 Substantially increasing the CTC on a permanent basis would help secure economic stability for working families, reduce inequality, and sustainably boost economic growth. It would be one of the most effective investments we can make as a society.

Another critical reform in the American Rescue Plan: Expanding the earned income tax credit

The rescue bill also includes a number of other critical tax reforms, including a complementary policy to expand the earned income tax credit (EITC) for workers who are not raising children in their home.

The EITC currently offers a credit to low- and moderate-income working families. The credit phases out much faster for low-income workers without qualifying children, however, dropping to zero for single filers who make more than $15,980 per year or married filers who make more than $21,920 per year. The maximum credit for workers without qualifying children is also much smaller, topping out at $543, compared with $3,618 or more for those with at least one qualifying child.39

The EITC is a highly successful anti-poverty program and wage subsidy. In 2018, it benefited more than 22 million working people and lifted about 5.6 million people above the poverty line.40 But workers who aren’t caring for a child in their homes, including those who help support noncustodial children, have largely been excluded from the credit, and as a result are one of the only groups that is taxed into—or deeper into—poverty by the federal tax code.41

President Biden’s rescue bill would address these issues by nearly tripling the maximum benefit for childless workers—raising the credit to $1,502—and benefiting single workers with incomes up to $21,427 per year and couples with incomes up to $27,367 per year.42 The bill would also expand the eligible age range, allowing both older and younger workers to claim the credit. Taken together, these important reforms would expand access for more than 17 million adults who are largely excluded from receiving the credit.43 Young workers and students—particularly young Black, Hispanic, and Asian American/Pacific Islander workers, who are more likely to work in jobs that pay low wages, disproportionately live in poverty, and were severely affected by the coronavirus pandemic—would especially benefit from these proposals.44

The IRS estimates that the EITC is currently only claimed by 4 out of 5 eligible workers, so it will be important to pair both the EITC and CTC expansions with strategies at the federal, state, local, and community levels to identify and reduce administrative and systemic barriers to program participation.45 In addition, it will be important to ensure that workers who lose earnings due to the pandemic are not further hurt by a reduction in their EITC. Congress addressed this problem for 2020 by allowing workers to choose to calculate their EITC based on their 2019 earnings, but it will need to be addressed again for 2021.46


With President Biden including critical expansions to the child tax credit in his proposed rescue package now moving through Congress, the United States has a golden opportunity to dramatically reduce the nation’s unacceptably high rates of child poverty. Taken together with strong investments in other assistance programs, policymakers can cut child poverty, help close persistent racial disparities, and set America on a better path toward a rapid and equitable recovery. It’s an opportunity that must be seized.

Galen Hendricks is a research associate of Economic Policy at the Center for American Progress. Lorena Roque is a senior policy analyst for Race and Ethnicity Policy at the Center.


  1. Areeba Haider, “The Basic Facts About Children in Poverty” (Washington: Center for American Progress, 2021), available at
  2. Ibid.
  3. Arloc Sherman and Tazra Mitchell, “Economic Security Programs Help Low-Income Children Succeed Over Long Term, Many Studies Find” (Washington: Center on Budget and Policy Priorities, 2017), available at
  4. Zachary Parolin, “Unemployment and child health during COVID-19 in the USA,” The Lancet 5 (2020): e521–e522, available at
  5. Haider, “The Basic Facts About Children in Poverty.”
  6. The Washington Post, “Biden’s emergency coronavirus plan,” January 14, 2021, available at
  7. Rachel West, Melissa Boteach, and Rebecca Vallas, “Harnessing the Child Tax Credit as a Tool to Invest in the Next Generation” (Washington: Center for American Progress, 2015), available at; American Family Act of 2019, S. 690, 116th Cong., 1st sess. (March 6, 2019), available at
  8. Ibid.
  9. House of Representatives Committee on Ways and Means, “Chairman Neal Announces Markup of COVID-19 Relief Measures,” Press release, February 8, 2021, available at
  10. Given the administrative challenges of initiating monthly payments, the FY 2021 budget reconciliation bill provides the IRS with additional resources and gives the secretary of the Treasury, who oversees the IRS, some discretion to adjust the timing of payments. If she determines that monthly delivery beginning in July is infeasible, she is directed to issue the payments as frequently as is feasible during 2021. In addition, an important provision creates a safe harbor so that if low- or moderate-income taxpayers receive an overpayment of the child tax credit during 2021—for example, if their family circumstances change in ways that would reduce their credit—they do not have to repay the excess amount on their 2021 tax return. House of Representatives Committee on Ways and Means, “Subtitle G – Promoting Economic Security Section-by-Section: Part 1 – 2020 Recovery Rebates” (Washington: 2021), available at
  11. For more on the periodic disbursement of tax credits, see Steve Holt, Kali Grant, and Funke Aderonmu, “Matching Timing to Need” (Washington: Georgetown Law Center on Poverty and Inequality, 2020), available at
  12. Center on Poverty and Social Policy at Columbia University, “A Poverty Reduction Analysis of the American Family Act” (New York: 2021), available at; Center on Poverty and Social Policy at Columbia University, “The American Family Act would move 4 million children out of poverty, but continuing to tie the credit to earnings nearly halves that impact” (New York: 2020), available at
  13. Zachary Parolin and others, “The Potential Poverty Reduction Effect of President-Elect Biden’s Economic Relief Proposal” (New York: Center on Poverty and Social Policy at Columbia University, 2021), available at
  14. Thomas L. Hungerford and Rebecca Thiess, “The Earned Income Tax Credit and the Child Tax Credit” (Washington: Economic Policy Institute, 2013), available at
  15. Congressional Research Service, “The Child Tax Credit: How it Works and Who Receives It” (Washington: 2021), available at
  16. An act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, Public Law 97, 115th Cong., 1st sess. (December 22, 2017), available at
  17. Elaine Maag, “The TCJA Didn’t Change Child Benefits For Most Families With Children By Very Much,” Forbes, October 9, 2019, available at
  18. Robert Greenstein and others, “Improving the Child Tax Credit for Very Low-Income Families” (US Partnership on Mobility from Poverty, 2018), available at
  19. David Wessel, “What is the Child Tax Credit? And how much of it is refundable?”, Brookings Institution Up Front blog, January 22, 2021, available at
  20. Jacob Goldin and Katherine Michelmore, “Who Benefits from the Child Tax Credit?” (Massachusetts: National Bureau of Economic Research, 2020), available at
  21. Brian Zipperer, “Over 13 million more people would be in poverty without unemployment insurance and stimulus payments,” Economic Policy Institute blog, September 17, 2020, available at
  22. Holt, Grant, and Aderonmu, “Matching Timing to Need.”
  23. Greg J. Duncan, Kathleen M. Ziol-Guest, and Ariel Kalil, “Early‐Childhood Poverty and Adult Attainment, Behavior, and Health,” Child Development 81 (1) (2010): 306–325, available at
  24. Arloc Sherman and Tazra Mitchell, “Economic Security Programs Help Low-Income Children Succeed Over Long Term, Many Studies Find.”
  25. Kevin Milligan and Mark Stabile, “Do Child Tax Benefits Affect the Well-Being of Children? Evidence from Canadian Child Benefit Expansions,” American Economic Journal: Economic Policy 3 (3) (2011): 175–205, available at
  26. Greg Duncan and Suzanne Le Menestrel, “A Roadmap to Reducing Child Poverty” (Washington: The National Academies Press), available at
  27. Center on Poverty and Social Policy at Columbia University, “The American Family Act would move 4 million children out of poverty, but continuing to tie the credit to earnings nearly halves that impact.”
  28. Board of Governors of the Federal Reserve System, “Survey of Consumer Finances 1989 – 2019: Transaction accounts by race or ethnicity,” available at;demographic:racecl4;population:all;units:median (last accessed February 2021).
  29. House of Representatives Committee on Ways and Means, “Subtitle G – Promoting Economic Security Section-by-Section.”
  30. Institute on Taxation and Economic Policy, “American Families Act” (Washington: 2019), available at
  31. Chuck Marr, “Biden-Harris Child Tax Credit Expansion Would Lift 10 Million Children Above or Closer to Poverty Line,” Center on Budget and Policy Priorities blog, January 21, 2021, available at
  32. Center on Poverty and Social Policy at Columbia University, “A Poverty Reduction Analysis of the American Family Act.”
  33. Joint Committee on Taxation, “Estimated Budgetary Effects of the Revenue Provisions of the Budget Reconciliation Legislative Recommendations, Scheduled for Markup by the House Committee on Ways and Means on February 10, 2021” (Washington: 2021), available at
  34. Congressional Budget Office, “The Budget and Economic Outlook: 2018 to 2028” (Washington: 2018), table B-3, available at
  35. Penn Wharton Budget Model, “Presidential Candidate Joe Biden’s Proposed Child Tax Credit Expansion” (Philadelphia: 2020), available at
  36. Chuck Marr and others, “Temporarily Expanding Child Tax Credit and Earned Income Tax Credit Would Deliver Effective Stimulus, Help Avert Poverty Spike” (Washington: Center on Budget and Policy Priorities, 2020), available at
  37. Mark Zandi and Bernard Yaros Jr., “The Biden Fiscal Rescue Package: Light on the Horizon” (New York: Moody’s Analytics, 2021), available at
  38. Christian E. Weller, Sara Estep, and Galen Hendricks, “Budgeting the Future” (Washington: Center for American Progress, 2019), available at
  39. Tax Policy Center, “Statistics: EITC Parameters,” available at (last accessed February 2021).
  40. Darrel Thompson, Whitney Bunts, and Ashley Burnside, “EITC for Childless Workers: What’s at Stake for Young Workers” (Washington: Center for Law and Social Policy, 2020), available at
  41. Chuck Marr, “President-Elect’s Plan Includes Vital EITC Increase for Adults Not Raising Children,” Center on Budget and Policy Priorities blog, January 15, 2021, available at
  42. House of Representatives Committee on Ways and Means, “Subtitle G – Promoting Economic Security Section-by-Section”; authors’ calculations based on Joint Committee on Taxation, “Description of the Budget Reconciliation Legislative Recommendations Relating To Promoting Economic Security” (Washington: 2021), available at
  43. Marr, “President-Elect’s Plan Includes Vital EITC Increase for Adults Not Raising Children.”
  44. Thompson, Bunts, and Burnside, “EITC for Childless Workers”; Elise Gould and Melat Kassa, “Young workers hit hard by the COVID-19 economy” (Washington: Economic Policy Institute, 2020), available at
  45. IRS, “About EITC,” available at (last accessed February 2021).
  46. IRS, “New option for claiming the Earned Income Tax Credit and Additional Child Tax Credit,” January 20, 2021, available at

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Galen Hendricks

Research Associate

Lorena Roque

Former Senior Policy Analyst

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