Child Tax Credit

April 15, 2024
Policy Snapshot

The Child Tax Credit (CTC) is a federal tax credit that reduces the tax bill (giving money back on income taxes paid) for families with children and youth aged 16 and younger. It doesn’t help families who pay less in taxes than the credit amount, but those families may still be eligible for the Additional Child Tax Credit, which provides a cash refund even when not paying any taxes.

For 2023, the federal Child Tax Credit is a $2,000 reduction in the tax bill per qualifying dependent. The refundable portion of that, which is the amount a family may receive as an annual tax refund beyond any taxes paid, is $1,600 per child. Benefits are reduced incrementally as family income increases, starting for single filers with incomes above $200,000 and joint filers with incomes above $400,000. Congress is considering legislation, introduced in January 2024, that would index the credit to keep pace with inflation, as well as increase the refundable amount. That legislation was inspired by the success of the Child Tax Credit in the American Rescue Plan Act (ARPA), which temporarily expanded the credit from July 15, 2021 through December 2021 for eligible families to receive a monthly payment of up to $250 per child ages 6 to 17 and $300 per child under age 6. 

In addition to the federal Child Tax Credit, 14 states, including the District’s neighbor, Maryland, have their own state Child Tax Credit to provide additional benefits to families. In 2023, nine members of the DC Council co-introduced legislation to create a DC Child Tax Credit. The amount of that credit is being debated, but would likely be either $500 or $1000 per child if the legislation is passed and funded.

The Impact of the Child Tax Credit

In the District, as of 2022, the median income for white households with children is estimated to be $280,000, compared to $62,300 for Black households with children. Over one-sixth of all District children – 21,000 children – lived in families with incomes below the federal poverty line in 2022 (roughly $25,800 for a family of three in 2024). Just under 9 out of 10 of these children and families are Black. Even with the bar defining “poverty” set so low, when the 2021 federal ARPA CTC was enacted, the Urban Institute estimated that the District would have one the greatest percentage reductions in child poverty rates. 

Nationally, increasing the child tax credit in 2021 resulted in at least a 30% drop in child poverty rates, and reduced food insecurity and other hardships among children. It prompted child poverty in the United States to drop to its lowest level on record, and lifted or eased poverty for an estimated 25,000 District children. Most families nationally used the payments to cover routine expenses such as housing, utilities, clothing, and food as well as to save for emergencies and pay off debt. 

The impact of the 2021 increase is consistent with longstanding research on the benefits of keeping more cash in the pockets of lower-income and working families. A team of researchers at Harvard and the National Bureau of Economic Research found that a $1,000 increase in tax credits raises students’ test scores, which in turn increases students’ probability of college attendance and increased earnings as adults. Further, researchers with the University of Washington Center for Studies in Demography and Ecology found that, for each additional $1,000 of a per-child EITC or CTC refund, the state saw a 5% decline in reports to child welfare authorities in the five weeks following the payments. They also found that youth reported fewer physical fights – and fewer criminal convictions during adolescence – after families received higher Earned Income Tax Credit Benefits, theorizing that reduced household economic stress yields reductions in family conflict and helps youth stay out of trouble outside the home, and more family resources for afterschool and summer programs helped youth stay safe and out of trouble.

Funding and Participation

In the 2020 tax year (the most recent available data not impacted by the temporary expansion in 2021), 59,520 District tax returns included the federal Child Tax Credit, representing 17% of the total tax returns in the District, and 32,860 returns included the Additional Child Tax Credit (9% of total District tax returns). That means $111,952,000 from the Child Tax Credit and $51,949,000 for the Additional Child Tax Credit went back to families, making it financially easier for them to care for themselves and their children.

The 2021 Child Tax Credit expansion temporarily increased the share of families who could benefit from the federal Child Tax Credit because it temporarily eliminated the minimum income of $2,500 required to claim the Additional Child Tax Credit and allowed families whose tax bill was less than the credit amount to still get the payment. The 2021 expansion also increased the age limit to include 17-year-olds (who had not previously been included). In the District, that meant that an estimated 65,000 families–raising 99,000 children in total–benefited from the expanded federal tax credit.

Recommendations

The DC Council should adopt a local child tax credit policy to help disrupt cycles of poverty in the District. That policy should:

  • Provide at least $1,500 per child, and be targeted to support families with the greatest financial challenges by phasing out eligibility for the local CTC at 200% of the federal poverty line and ending it no lower than 300% (as recommended by DCFPI). These parameters for a local child tax credit would bring the benefit to an estimated 80,000 children, lifting 4,700 from poverty and reducing child poverty by 18%. To cut District child poverty in half, according to the Institute on Taxation and Economic Policy, we would need a $3,400 credit for children ages 6 and up (and $4,080 for younger children). 
  • Reach the roughly 5,725 children in the District whose families do not need to file taxes because their incomes are so low (based on 2021 and 2022 estimates from the IRS). Over half of those households are in just five zip codes – 20002, 20011, 20019, 20020, 20032 – all in wards 4, 5, 7, and 8. Even families who do not owe taxes must still be supported in filing taxes in order to benefit from a variety of local and federal tax credit cash assistance programs.
  • Not limit the number of children eligible per family.
  • Include 17-year-old children until they turn 18.
  • Avoid impacting recipients’ other benefits with income restrictions (SNAP, TANF, etc.), as discussed by our partners at Children’s Law Center. 
  • Be funded with an equitable source of new revenue. Instituting a local child tax credit cannot come at the expense of other core cash assistance or human services programs that are intended to lift up the same population of residents.

DC Action also supports federal expansion of the Child Tax Credit.