Proposed federal Child Tax Credit expansion would boost the incomes of millions of families

Haleigh Sinclair
Jan 25, 2024

Key decision-makers in the U.S. Congress have crafted a tax deal that includes a three-year expansion of the federal Child Tax Credit. This expansion would result in everyday families having more resources to afford diapers, rent, clothes, and other basics. But expansion of the federal CTC is not a done deal yet, so it is very important that Congress hears from you that they should pass this proposal.

Proposed Child Tax Credit expansion would improve family well-being and address racial disparities

The federal Child Tax Credit is part of the income tax system that ensures families have more resources to cover the costs of raising healthy and thriving children. As part of the American Rescue Plan, the federal Child Tax Credit was temporarily expanded in 2021 to provide more cash to families, reach more children and families, and address design flaws that kept the lowest-income families from getting the same benefit as those better off. The expanded federal CTC was a major contributor to a remarkable 59 percent decline in child poverty. With the proposed expansion, Congress can build on that success.

The Center on Budget and Policy Priorities (CBPP) has crunched the numbers to illustrate how families would benefit from this proposal. In just the first year, this expansion would benefit about 16 million children in low-income families across the country and lift as many as 400,000 children above the poverty line. The impact would be even greater when the proposal is fully implemented in 2025. Childhood poverty would be reduced. Black, Latino, and American Indian and Alaska Native children are disproportionately likely to gain additional income from the policy, as their parents are more likely to be working in low-paid work as a result of historical and ongoing barriers to opportunity they face.

CBPP lifts up this example if this proposal is enacted: a single parent with two children who earns $13,000 working part time as a home health aide would see an additional $1,575 in the first year.

The proposal takes aim at one of the biggest problems with the current structure of the federal Child Tax Credit: that the lowest-income families – those for whom the tax credit could make the most difference in their economic well-being – are prevented from receiving the full $2,000 per child value of the credit. According to CBPP, the proposed expansion would reach more than 80 percent of the children currently left out of the full credit because their family incomes are too low – including 194,000 children in Minnesota.

In the first year, nearly 40 percent of low-income children across the country benefiting from this proposal would see their family’s income boosted by $1,000 or more. Research shows that increases in family incomes like this not only help families pay the bills, but also go a long way towards long-term improvements in health, education, and earnings.

Child Tax Credit expansion ensures larger tax credits for families

The proposed expansion includes the following provisions:

  • Increase the maximum amount of Child Tax Credit. The maximum credit is $2,000 per child. In this proposal, it would be increased to keep up with inflation in 2025, reaching an estimated $2,100.
  • Increasing the amount of credit the lowest-income families receive. The proposal includes two technical changes to address the reasons that the lowest-income families get smaller credits than higher-income families. Low-income families will begin to receive a larger portion of the full value of the Child Tax Credit.
  • Families won’t be penalized by temporary fluctuations in their earnings. Under the proposal, families could calculate their Child Tax Credit based on either the current year or the prior year, whichever is more beneficial to the family. Because of the flaws in the way the CTC currently treats the lowest-income families, short-term hardship can be compounded through a reduction or loss of the Child Tax Credit.

While the proposed expansion is not as extensive as temporary changes made previously under the American Rescue Plan, it would make a real difference for struggling families. It does not include the ARP’s innovative approach of providing part of the value of the CTC to families in monthly payments. Instead, families would see their increased Child Tax Credit as a lump sum starting this year. Although the start of the income tax filing season is only days away, families could still receive the expanded credit even if they have filed their taxes before it is passed by Congress.

Policymakers should act now to pass the federal Child Tax Credit expansion

Policymakers have reached a bipartisan compromise that pairs improvements to the Child Tax Credit with extending tax provisions benefiting businesses. These tax cuts provide special treatment for certain kinds of corporate spending, on top of the massive cut in the corporate tax rate enacted in 2017. While the corporate tax cuts are flawed and reduce the resources available to fund public services that everyday folks count on, they appear to be what was needed to reach a bipartisan proposal that still takes an incredibly meaningful step towards improving family well-being and reducing child poverty.

Evidence demonstrates how incredibly successful improvements to the federal CTC were in boosting family incomes, reducing child poverty, and narrowing racial, geographic, and economic disparities. Passage of the proposed expansion would build upon this success and bridge the way for even better policy in the future.

But policymakers need to hear from you that the Child Tax Credit is an urgent priority. Use your voice today and send an email through this Children’s Defense Fund tool.

If you would like to learn more about the proposed CTC expansion, you can read the Center on Budget Policy and Priorities’ analysis.

Update: Since this blog was originally posted, the U.S. House passed the tax package including the Child Tax Credit expansion with an overwhelming majority. The bill will now move to the Senate, but a vote has not been scheduled yet.