The Child Tax Credit is a near-universal benefit for families with children ages birth to 17 and lifts millions of children out of poverty annually.
What’s the Issue?
Some research demonstrates that exposure to stressors such as food insecurity, substandard housing, and income volatility can lead to poorer health. The Child Tax Credit began modestly in 1998 as a $400 per child tax credit and could only be used to offset federal income taxes, which very few families having low incomes owe. Eligibility expansion over the years and increases in the credit amounts allowed more families with children to receive the Child Tax Credit. However, an estimated 27 million children still lived in families that did not receive the full Child Tax Credit because they earned too little. The American Rescue Plan Act of 2021 made several temporary changes to the Child Tax Credit as part of a larger package of reforms supporting economic recovery from the COVID-19 pandemic.
Low- and middle-income families with children benefit from two related tax credits: the Earned Income Tax Credit (EITC) and the Child Tax Credit. Enacted in 1975, EITC has a much more developed evidence base. A strong body of evidence shows that children who live in poverty face a lifetime of disadvantages—including differences in young children’s brain development and low birthweight—a primary risk factor for infant deaths and worse health later in life. Research has shown that EITC correlates to a reduction in low birth weight, a decrease in risky behaviors such as smoking, and an increase in prenatal care.
Increasing income through tax credits has also been shown to improve home environments, nutrition, and educational and economic attainment. Making the full credit available as a tax refund in 2021 allowed the lowest-income families to receive average benefits on par with those received by middle-income families. It also made the credit more equitable, as Black and Hispanic children are more likely to be left out of the credit’s full benefits than children who are White.
The well-established connection between income and health, particularly among families experiencing poverty, makes the Child Tax Credit an effective tool. Two of the pathways by which tax credits may affect health are in raising incomes and delivery throughout the year, which may keep some families with very low incomes from experiencing income volatility that results in periodic material hardship. The Child Tax Credit payments delivered in the second half of 2021 were a mostly unexpected source of household income with a correlation to a decrease in reported food insecurity for some families. As such, it could be used in research to more closely understand the impact of regular, predictable income payments on the health of families with children.
Although early research on delivering the Child Tax Credit monthly showed promise for both helping stabilize low-income families and helping middle-income families make ends meet, it is not yet clear whether downsides to advanced delivery will become apparent at tax time. Additional research could more precisely and rigorously analyze whether the benefits associated with monthly payments, such as reducing food insecurity, outweigh the potential disadvantages of resulting smaller tax refunds.
What shape the Child Tax Credit will take in coming years remains in flux. The program’s temporary expansion also shines a light on several unanswered questions about how to maximize the health benefit of tax credits. If the 2021 changes to the credit were in place in a typical year, experts predict that child poverty could decrease by 40 percent and income fluctuations could be reduced—with both results potentially having significant implications for improving health, development, and later life prospects for the beneficiaries of the Child Tax Credit. Making sure very low-income families receive the Child Tax Credit could be critical to keeping the largest number of children out of poverty. Larger credits, such as receiving EITC and the Child Tax Credit, could lead to greater health improvements.