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The Child Tax Credit will keep millions of children out of poverty

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It’s a big day for more than 39 million families with children across the country. Today, the IRS will begin issuing the first-ever monthly installment of a newly expanded Child Tax Credit. The Child Tax Credit will cut child poverty significantly, meaningfully addressing racial disparities and vastly improving the lives of millions of children.  

Though the Child Tax Credit has long been part of the tax code, the Biden administration significantly improved and expanded it in the American Rescue Plan earlier this year. Families with older children will now receive annual credits of $3,000 rather than $2,000, and the credit is extended to 17-year-olds for the first time. Families with children under the age of 6 will receive $3,600 to account for extra expenses during some of a child’s most formative years. For the first time, families will have the option to receive their benefits monthly rather than as an annual lump sum to account for the ongoing expenses of raising children. Most importantly, the new Child Tax Credit finally extends full eligibility to the poorest families, who previously found themselves shut out or shortchanged by the program’s cruel “phase-in” structure because their incomes were considered too low to benefit from the program the way other families could.

The potential impacts of the tax credit are stunning. It would lift more than 4 million children above the federal poverty line, provide new resources to 27 million children previously who got less than the full $2,000, or even nothing, due to their parents’ low incomes, and reach a total estimated 65 million children. The new Child Tax Credit will also address racial disparities. Black and Latino children are disproportionately more likely to experience poverty due to centuries of structural racism, including the barriers their parents experience in the labor market. That also means the income phase-in disproportionately cut out children of color from the previous Child Tax Credits. Now that it’s been extended to all low- and no-income families, an additional 23 million children of color will fully benefit.    

While the first benefits are just being directly deposited in bank accounts this morning, they have already allowed many families to breathe a sigh of relief and make plans to improve their lives. In Louisiana, one parent hopes to use the money to pay rent and send her children to activities like school trips and summer camps. In North Carolina, a couple will spend their credit on new clothes and books for their three young children. In Tennessee, one mother plans a needed car payment while another anticipates paying for medical bills and school expenses. Food, utilities, child care, diapers, baby formula, clothes and supplies for school — it’s all included on the almost endless list of ways that families can use the child tax credit payments to meet their children’s basic needs and ensure their wellbeing.

Research backs up what these caregivers already know: money helps. When families have increased resources to raise their children, better outcomes follow, including better nutrition, higher school enrollment, lower maternal stress and healthier birth weights. 

The sheer variety of ways that families hope to use this money is also a testament to one of the policy’s greatest strengths — cash. With all its flexibility, cash gives families the agency they need to quickly make the best decisions for their unique circumstances. It’s a simple truth that’s deceptively radical, and it didn’t happen by accident. 

For decades, crucial anti-poverty programs haven’t kept up with need or with historic economic inequality; the financial devastation of the pandemic has made it abundantly clear that America’s fragile social safety net wasn’t designed to efficiently provide people the assistance they need. For the country’s most vulnerable children, having their basic needs met has never been guaranteed.

But poverty is a political choice, not an inevitability. Joblessness, caregiving responsibilities, single parenthood, and other common life events only put children at risk of economic instability because U.S. policy allows it. The new monthly payments demonstrate how the U.S. government can support its people by immediately helping families and children contend with uncertainty, emergencies, and all too common financial ups and downs. The expanded Child Tax Credit will not only lift millions out of poverty but it can prevent millions of others from being pushed below the federal poverty line in the first place. 

The improved child tax credit is groundbreaking, but there are still ways to make sure that even more families benefit. As many as several million newly eligible families aren’t required to file federal taxes because their incomes are low and have not yet gone online to claim their economic stimulus payments — and so they won’t receive a check or direct deposit from the IRS automatically. Reaching them will require intensive outreach and simplified processes. The IRS has worked to create new portals for families to update their information or opt-out of the monthly payments, and for non-filers to sign up, but the agency still needs to add features including accessibility in languages other than English. Going forward, Congress should also do more to simplify the process and ensure that it is accessible to all. The credit in its current form also continues the Trump-era policy of excluding immigrant children with Individual Taxpayer Identification Numbers; all children, regardless of immigration status, should be able to benefit.

The new improvements to the Child Tax Credit are also temporary. Unless Congress acts to extend the expansion, the monthly payments will stop at the end of the year. Congress needs to extend it and make it permanent. 

It is past time for America to meaningfully invest in its children. The expanded Child Tax Credit will be a gamechanger for many families over the next year. But by permanently implementing the expanded Child Tax Credit, Congress can strengthen the economy for families and ensure tens of millions of children never know poverty in the first place. 

Areeba Haider is a research associate for the Poverty to Prosperity Program at the Center for American Progress and Galen Hendricks is a research associate with the Economic Policy Program at the Center for American Progress.

Tags American Rescue Plan Child poverty COVID-19 CTC Extended Child Tax Credit IRS poverty level taxes

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