Millions of families received monthly checks of up to $300 per child in 2021, thanks to the expanded child tax credit.
But now that the legislation that put the more generous payments in place has expired, about 19 million children receive less than the full credit or no credit at all, according to a new report from the Center on Budget and Policy Priorities, a non-partisan research and policy institute.
Making the full $2,000 child tax credit available to children whose parents’ earnings are too low or who are out of work would help substantially reduce child poverty, according to the CBPP.
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The expanded child tax credit and other legislative changes helped reduce the child poverty rate to a record low of 5.2%. Without those changes, it would have been 8.1%, according to the report.
Now, during the lame duck session before the next Congress is seated, legislators have another opportunity to expand the credit again at the same time they are poised to consider corporate tax breaks.
“The stakes are high,” the Center on Budget and Policy Priorities report states. “Policy makers can expand the child tax credit, or they can fail to act and see the Rescue Plan’s historic gains against child poverty evaporate.”
Why low-income families receive smaller credits
The 2021 child tax credit gave families larger sums: up to $3,600 per child under age 6, and up to $3,000 per child ages 6 through 17. Up to half of those sums was available through monthly payments, while families could file for the rest of the money (or the entire sums if they did not receive monthly checks) with their 2021 tax returns.
More families were eligible to receive the expanded credit since it was made available to all children, excluding high-income families, and also included 17-year-olds.
Now, the child tax credit has reverted to previous rules, for a total of $2,000 per child up under age 17.
Because those rules also include earned income requirements, about 19 million children receive less than the full credit or no credit at all.
The current child tax credit phases in with earnings above $2,500. A family may only receive up to $1,500 if the amount of the tax credit due to them exceeds their income tax liability. The credit also phases in with income rather than number of children.
As a result, families with lower incomes may receive the same sum, regardless of the number of children they have, while a high-income family may receive $2,000 per child, according to the CBPP report.
For example, a single parent of two children earning $15,000 may receive a child tax credit of $1,875. In comparison, a single parent of two children earning $150,000, or married parents earning $400,000, would receive $4,000, or $2,000, respectively, per child.
Families receiving reduced or no child tax credits due to low incomes tend to be members of racial minorities. That includes an estimated 45% of Black children, up to 39% of Latino children and 38% of American Indian or Alaskan Native children, according to Sarah Calame, research assistant at the Center on Budget and Policy Priorities.
“An expanded CTC that focuses on lifting up those 19 million kids who are left out could really push back on some of these economic inequities,” Calame said.
Some lawmakers urge end-of-year action
As Congress seeks a way to include corporate tax breaks in upcoming legislation, some lawmakers say they will not support those efforts without a renewal of an expanded child tax credit.
Earlier this month, Democratic members of Congress sent a letter to Senate Majority Leader Chuck Schumer and House Speaker Nancy Pelosi urging them to reinstate the monthly refundable child tax credit, as well as the expanded earned income tax credit, by no later than the end of the year.
“We should not extend corporate tax breaks unless and until we deliver additional relief for families,” the lawmakers wrote.
The aid could help families afford regular expenses, including food, amid record high inflation and soaring interest rates, they said.
To be sure, a new child tax credit may not have the same terms as the 2021 policy, as lawmakers face “difficult tradeoffs,” according to a recent report from the Tax Foundation.
The largest hurdle they face may be deciding the credit’s role in the tax code. Currently, the credit provides social support for families with children, an adjustment for household size, support for working class and poor families, as well as work incentives.
Based on the success the 2021 credit had in reducing child poverty, lawmakers should prioritize making the credit fully available to the lowest income families, said Kris Cox, deputy director of federal tax policy at the Center on Budget and Policy Priorities.
“Child poverty is a choice,” Cox said.
“Policy makers face this stark choice at the end of the year, whether they’re going to act to expand the CTC in some way or whether they’re going to allow millions of children to fall back into poverty,” she said.