Tax Credits Can Help Lift Families Out of Poverty

The American Rescue Plan Act of 2021 expanded the Child Tax Credit (CTC) and made it fully refundable for the first time. This credit helps working families offset the costs of raising children. This expansion is especially important for low-income families with children, who often do not have any federal income tax liability. The Plan increased the credit amount from $2,000 per child to $3,000 per child for children ages 6-17, and $3,600 per child for children under age 6. Estimates suggest that these changes to the CTC may reduce the total number of children in poverty by 35 to 45 percent. The new refundability of the CTC will allow lower-income families to receive the full amount for which they are eligible, regardless of the amount of taxes they pay. This can help lift children and families out of poverty and potentially reduce future crime.

Research shows that increasing working families’ incomes, such as through the CTC and Earned Income Tax Credit (EITC), is associated with improved educational outcomes for children, thereby improving their future opportunities. There is also evidence that income assistance policies can reduce risky behaviors such as substance abuse and even decrease the likelihood of criminal behavior. In sum, policies that increase family income, including the CTC and EITC, can help children from disadvantaged families, both in childhood and in the long term.

Many families in the United States experience unemployment, food insecurity, and other financial hardships—hardships exacerbated by the COVID-19 pandemic. The CTC and EITC are some of the strongest anti-poverty tools that have proven effective in helping low-income families escape poverty. With the enhancements to both the CTC and EITC set to expire at the end of 2021, Congress must act to extend the expansion and refundability of the credits to lift families out of poverty and strengthen our public safety by creating better outcomes for children and families.