Tax Credits for Families

What the Research Says

• According to the Census’s most recent 2023 data, 11.9 percent of women live below the poverty line, compared to 10.2 percent of men. Twenty-eight percent of single mothers and 5 percent of married mothers live in poverty, and rates of poverty are particularly high for Black, Latina, and Native women.
• As women are increasingly the sole or primary breadwinners for families, higher rates of poverty for women translate to even higher rates of poverty for children. The childhood poverty rate in 2023 was 13.7 percent, according to Census Bureau data.
• There is evidence to suggest that an expanded Child Tax Credit is needed to affect a significant reduction in poverty. An estimate from the Institute on Taxation and Economic Policy (ITEP) found that, in a majority of states, a credit of at least $3,000–$4,500 would be required to cut poverty rates in half. Under the pandemic-era expanded Child Tax Credit, the Joint Economic Committee reports that child poverty fell to its lowest rate on record.
• Childhood poverty increased at least in part due to the expiration of the expanded Child Tax Credit. The Child Tax Credit was expanded through the end of 2021 as part of the federal government’s response to the Covid-19 pandemic. IWPR research found that women were more likely to report both needing and receiving the expanded Child Tax Credit, and Black and Latina families were more likely to use the additional income for their living expenses rather than to pay down debt.
• The Earned Income Tax Credit is another critical program to boost the incomes and well-being of women and their families. Because people of color are more likely to work in low-paid occupations, research from the Center on Budget and Policy Priorities has found that the Earned Income Tax Credit increased the income of nine million women of color in 2019 alone.
• Antipoverty income supports do not just address the symptoms of poverty but can also alleviate some of the underlying causes. Research from the Washington Center for Equitable Growth shows that such supports allow workers to maintain employment as well as increase the likelihood that low-wage workers will start earning higher wages.

Why It Matters

Women’s concentration in lower-paying jobs, their increased likelihood of being sole or main breadwinners, and their outsized responsibility for caregiving all reinforce increased financial instability that leads to higher poverty rates for themselves and their families, according to IWPR research. These problems are even more acute for women of color. Refundable tax credits can alleviate some of these effects, but they must be sufficient and stable enough for families to rely on. When women have a stable foundation, they are able to make real gains in the economy.

Credits like the Earned Income Tax Credit boost earnings for low-wage workers, with outsized benefits for women. Women of color are more likely to be in low-paid jobs, face higher gender wage gaps and discrimination, and, according to research from the Center for American Progress, are more likely to live in poverty. For these reasons, Black, Latina, and Native women are more likely to benefit from expanding the Child Tax Credit and the Earned Income Tax Credit.

Women also take on the bulk of responsibility for unpaid child care in their families. Refundable credits, like the Child Tax Credit, can help ensure that they have the financial means to provide for their families. Modifying the tax code to enhance these credits would benefit the economy by supporting a stable foundation for those who can benefit the most from it.

Policy Solutions

Policymakers should seek opportunities to reduce financial hardship and poverty for women and families through expanded tax credits, prioritizing access to these credits for the lowest-income households. Policy priorities include:

Pass an expanded Child Tax Credit. The American Rescue Plan (ARP) offered policymakers options for how to improve the federal Child Tax Credit for the families that need it most by enacting a series of temporary fixes. These included an increase in the maximum credit to $3,600 for children under 6 and $3,000 for children 6–17, allowing the benefit to be claimed for 17-year-old children, providing advance monthly payments of the credit, and making the credit fully refundable. These changes, taken together, meant that low-income families had full access to the credit, resulting in resounding reductions in childhood poverty. Policymakers should look to passing a permanent expanded Child Tax Credit that builds on the success of the ARP changes:

• Ensure that the Child Tax Credit is accessible to the lowest-income families. This means that the Child Tax Credit must be available to families with little or no earnings, and it must be fully refundable, meaning that if the credit exceeds the amount a family owes in federal taxes, they will receive the full amount of the credit as a refund.
• Increase the amount of the Child Tax Credit. Analysts have pointed to the pandemic-era Child Tax Credit increase, coupled with full refundability, as a major driver of reduced childhood poverty. One estimate found that, in a majority of states, a credit of at least $3,000–$4,500 would be required to cut poverty rates in half. The idea of substantial increases to the amount offered to families has garnered bipartisan attention.
• Make other changes to the Child Tax Credit instituted through the ARP permanent and promote their full implementation. These include making the credit fully available to families with 17-year-old children. While the ARP did permanently remove longstanding barriers that prevented families in Puerto Rico and other US territories from accessing benefits, policymakers should seek additional ways to promote awareness and enrollment in the territories under the new eligibility rules.
• Restore Child Tax Credit eligibility for children with Individual Tax Identification Numbers (ITINs). Estimates from the Center on Budget and Policy Priorities suggest suggest this change could help at least 675,000 children. Children with ITINs were previously eligible for the federal Child Tax Credit, but their eligibility was restricted by the 2017 tax law. The ARP did not restore this eligibility, so these families have faced continued exclusion from the benefits of the credit.

Enact a permanent expanded Earned Income Tax Credit, a refundable credit designed to help workers with low earnings. Because these benefits fluctuate by family makeup and size, workers with more children see greater benefits, and workers without children receive much smaller benefits. The credit phases in and out at set, gradual rates, meaning that credits increase as earned income reaches a set maximum and then gradually decreases until a worker’s earnings reach a set threshold. Policymakers should make permanent many of the changes to the Earned Income Tax Credit that were included in the ARP for workers not claiming children, including increasing the level of income for workers to be able to claim the credit, lowering the minimum ages of eligibility for workers without children, and eliminating the maximum age (currently 65). In line with the changes included in the ARP, policymakers should also raise the maximum credit amount and reexamine the phase-in and phase-out rates for the Earned Income Tax Credit, as well as the income threshold at which the phase-out begins.

Key Legislation

American Family Act: Legislation to make the expanded Child Tax Credit permanent. This bill would make the credit fully refundable, increase the credit from $2,000 to $3,000 for children over age six and $3,600 for children under age six, allow for monthly delivery of the credit, and extend the credit to US territories.

This brief is part of IWPR’s Federal Policy Solutions to Advance Gender Equity. Click here to see the full series.