Federal Tax Credits in 2021 Lifted More than 2 Million Children Out of Poverty, Says New Report

The largest poverty reductions from the EITC and CTC expansions occurred among children in single-parent households, large families, and families with parents with lower educational attainment or who were employed part time. Hispanic children and children in families with mixed citizenship status also experienced poverty reductions, though eligibility restrictions limited the size of their gains. Analyses relied on the Supplemental Poverty Measure and the TRIM3 microsimulation model to capture how the EITC and CTC influenced child poverty during the pandemic.

Created in 1975, the EITC increases the income of low-wage working families and is fully refundable, meaning families can receive a refund even if they owe no income taxes. The American Rescue Plan Act of 2021 (ARPA) temporarily expanded benefits for workers without children, but it left unchanged the structure of benefits for families with children. The CTC, enacted in 1997, initially provided a nonrefundable tax credit to primarily middle-income working families with children, but it has expanded over time to both lower- and higher-income families. In 2021, the legislation made the CTC fully refundable, extending eligibility to those families with little or no earned income. It also increased the maximum benefit to $3,600 for children under 6 years of age and $3,000 for children ages 6-17, and it introduced monthly advance payments.

"From diverse perspectives and backgrounds, our study committee came together and reviewed a vast amount of data and information to present the comprehensive assessment laid out in the report, which finds that the tax credit expansions in 2021 helped reduce child poverty by almost half and had little effect on employment," said V. Joseph Hotz, research professor, Harris School of Public Policy, University of Chicago, and chair of the committee that wrote the report.