Miranda and Joseph have been in a relationship for years but aren’t married. Miranda is a stay-at-home mom, so she has no income from paid work. Joseph is a basketball coach at the local high school, earning about $50,000 a year. Together they parent Julian, who is Miranda’s child from a prior relationship, and Alicia, who is Miranda’s cousin. They’ve lived together for as long as Julian and Alicia can remember, and Miranda and Joseph walk with them to the bus stop every morning, have dinner together every night, and look after them when they’re sick. 

But, for different reasons, Miranda and Joseph can’t claim the EITC or the CTC for Julian and Alicia.

Joseph has the earnings to be eligible for both credits, but neither child meets the relationship test rules, so Joseph can’t claim them for the credits. Relationship test rules require that a child have a specific relationshipto the taxpayer. Because neither Alicia nor Julian has one of these relationships with Joseph, he can’t claim either as a qualifying child for the EITC or the CTC.

Similarly, Miranda can’t claim Alicia because they’re cousins, and cousins don’t qualify under the relationship test. And though Miranda meets the relationship test for Julian, she’s ineligible for the EITC and the CTC because she has no earnings during the tax year.

Although ineligible for the EITC and the CTC, Joseph may be able to claim Julian, Alicia, and Miranda for a $500 credit for other dependents, because they’re his qualifying relatives (PDF). This credit can reduce his tax bill by $1,500—less than a quarter of what he could have received if he were able to claim Julian and Alicia as qualifying children for the EITC and the CTC.

How to address this

Per the National Taxpayer Advocate (PDF), couples who live together but aren’t married and families that include nonbiological children, like the family above, can face challenges qualifying for tax benefits. There are several ways to make eligibility rules for benefits such as the EITC and the CTC more accommodating of diverse caregiving arrangements.

Congress could update relationship test rules to make nontraditional primary caregivers eligible for tax credits. Congress could allow primary caregivers who are not close relatives to be eligible if they demonstrate a close connection with a child, such as by providing a significant amount of their financial support. This change could potentially expand eligibility for the CTC to 2 million children, including Julian and Alicia.

Congress could modify the CTC’s earnings rules for families with low incomes, allowing more children to benefit. Families with children and low incomes can receive part of the CTC—called the “refundable” portion—in their tax refund even if they don't owe income taxes. The amount of the refundable credit increases, or “phases in,” with earnings, so families who earn more get a bigger tax credit. But many families with low incomes don't earn enough to receive the full benefit.

Eliminating the earnings phase-in for families with low incomes would benefit 19 million children, and nearly 2 million of them would be newly eligible for the CTC. Policymakers could also consider phasing in the tax credit faster, at a cost of about $3 billion a year, so more children from families with low incomes could get a larger tax credit, even if some would still receive less than the credit’s maximum amount.

Laura and David are married and have a child together, Mia. Laura is originally from El Salvador and came to the United States on a tourist visa. David is a US citizen and veteran.

When they first met, Laura was working as a waitress at their local diner, where she was paid in cash. To pay the federal taxes she owes, she applied for an individual taxpayer identification number (ITIN) because her immigration status made her ineligible for a Social Security number (SSN). David has a physical disability from combat and can’t work, so his only income is his Veterans Affairs benefits, which aren’t taxable.

Laura took a step back from working while Mia was young, so the family’s income fell below the threshold at which a person must file taxes. During this time, Laura’s ITIN expired because she didn’t have to file taxes for three years. When Laura eventually went back to work as a waitress, her earnings made her and David eligible for the CTC. They prepared to file a joint return but soon realized Laura would need to renew her ITIN for them to be able to file.

To renew her ITIN, Laura had to get documentation proving her identity and have her foreign status verified either in person or through the mail. Because the in-person options, such as IRS Taxpayer Assistance Centers, were hours away from their rural home, Laura mailed her birth certificate and driver’s license to the IRS. She then anxiously waited for the IRS to return her sensitive documents for two months. It took another three weeks after that to process her ITIN renewal.

Only after this months-long process could Laura and David file for and receive the CTC. They still couldn’t claim the EITC, though. It requires both spouses to have SSNs, which Laura can obtain once she applies for and receives legal immigration status—another lengthy process.

How to address this

Millions of US families have members with a mix of immigration statuses, including US citizens, lawfully present immigrants, and undocumented immigrants. SSN requirements can exclude many of these families from tax benefits like the EITC and CTC. The administrative hurdles to getting an ITIN may also discourage filing and prevent families from receiving tax benefits they may be eligible for. And recent federal immigration actions, including the use of tax records to aid mass deportation efforts, compound these burdens.

These barriers can mean that US-citizen children in mixed-status families, like Mia, lose out on crucial assistance. Policymakers and tax officials could take the following steps to ensure the tax system better supports these families.

The IRS could continue improving ITIN processes. The IRS has recently improved the process for mailed-in ITIN paperwork (PDF), speeding up document verification and reducing the time people must spend without important documents. Noncitizen taxpayers also have the option to get documents certified and returned in person by a certifying acceptance agent, who is authorized by the IRS to help noncitizens obtain ITINs. But these services aren’t affordable for everyone.

If more Volunteer Income Tax Assistance (VITA) sites offered certifying acceptance agent services, many ITIN filers—who tend to be income-eligible for VITA services (PDF)—could access such services. Congress could increase these agents’ availability at VITA sites by increasing VITA grant amounts and allowing them to cover these services. Alternatively, the IRS could verify documents electronically and create an online portal for submitting and reviewing the status of ITIN applications, among other modernization reforms.

The IRS could create more IRS Taxpayer Assistance Centers. Expanding services in rural and urban areas in each state would make it simpler for families to renew ITINs in person at Taxpayer Assistance Centers. If the IRS eliminated the requirement that an ITIN application be filed with a tax return, these centers could also process ITIN applications year-round (not just when submitting a federal tax return), and processing times would likely improve.

Congress could make qualifying children in mixed-status families eligible for the EITC. To improve the well-being of US-citizen children in families with low incomes and a mix of immigration statuses, Congress could consider revising the EITC’s taxpayer identification rules to include some taxpayers with ITINs, as some states have done. One way to do that would be to align the taxpayer identification rules for claiming the EITC with those of the CTC’s under the One Big Beautiful Bill Act. Under those rules, a child and at least one parent must have an SSN; among married couples who file jointly, the other spouse could have an ITIN. This would extend EITC eligibility to families like Mia’s.

Grant and Shay are a married couple in their 70s. Grant is a retired janitor of a nearby elementary school, and Shay has looked after their family and home since their children were young.

Recently, they took in their middle school–aged granddaughter, Sophie. As her primary caregivers, Grant and Shay support Sophie in every way—from taking her to her soccer and piano practices to scheduling her doctor’s visits. To help make ends meet, Shay picked up a few shifts at the local hardware store.

Grant receives about $23,000 annually in Social Security benefits and Shay makes a little less than $10,000 a year at the hardware store, so their household’s income is below the tax filing threshold. That means Grant and Shay don’t owe income taxes and aren’t required to file a tax return. In fact, they assume they aren’t supposed to and shouldn’t file. Because of this misconception, they don’t file their taxes and don’t receive the CTC or the EITC, even though they’re eligible because they have earnings and can claim Sophie as their qualifying child.

How to address this

Though families with low incomes, like Grant and Shay’s, may not owe income taxes, they can still receive substantial benefits if they’re eligible for the CTC and the EITC and they file a return. Eligible families who do file taxes (PDF) are highly likely to receive the benefits they qualify for. Tax officials and policymakers could consider the following ways to let families know they’re eligible for a tax credit and help them successfully file tax returns.

The IRS and state and local tax departments could increase outreach efforts with community organizations and other government agencies that serve nonfilers (PDF). These outreach efforts could involve teachers, members of local churches, and other community members, which research shows can help families claim tax credits. The IRS and state and local tax agencies, alongside tax preparers and advocates, could also share tax information in multiple languages and media, and in other government service appointments and community events, to increase awareness of tax benefits among households that are less likely to claim benefits they’re eligible for. But cutting taxpayer assistance services or multilingual resources may prevent families from learning about and accessing benefits.

Congress and state and local tax departments could expand free and low-cost tax-filing services. Some taxpayers don’t file taxes because they feel it’s not worth the cost and hassle, especially if they aren’t required to file. But if families who don’t file a tax return, especially those raising children, had access to convenient and free or low-cost filing services, they might be more likely to file. To make it easier for families to file and claim the EITC and the CTC, Congress and the IRS could revive the IRS’s Direct File program and ensure that free software available through its Free File program is easier to access (PDF). Congress could also increase funding for VITA services (PDF), and state and local governments could develop their own free tax-filing portals in partnership with other organizations.

Anthony is in elementary school, and he lives with multiple family members who take turns caring for him. His mother, Lisa, and grandmother, Judy, both work at a nearby hotel, where they work different shifts. During the school year, Anthony splits his time between Lisa’s and Judy’s apartments, depending on who’s available to watch him, spending roughly five months with each of them. In the summer, Anthony lives with his father, Morgan. 

None of Anthony’s caregivers meet the EITC’s and CTC’s residency test rules, which require a child and the taxpayer claiming them to live together for at least six months during the calendar year. Even though multiple family members are lovingly caring for and supporting Anthony, none of them live with him long enough to qualify for these credits.

How to address this

Data suggest (PDF) the residency test is the most common cause of children being claimed in error on EITC claims, which may be partly explained by the fact that many children move between homes and caregivers (PDF). And, if a taxpayer is audited, it can be difficult to prove that a child meets the residency test, especially if children and families move. Revising residency test rules to better accommodate a range of caregiving arrangements, including Anthony’s, and simplifying the documentation requirements could ease the burdens on busy caregivers.

Congress could waive the residency test rules and allow families to decide which taxpayer claims a child for tax benefits. If this resulted in multiple claims, tie-breaker rules could continue to decide which taxpayer can claim the child. Alternatively, in cases where a child doesn’t live with any taxpayer for more than six months of the year, Congress could amend the residency test rules to allow the taxpayer who spent the most time with the child (even if under six months) to claim them, as long as that caregiver meets the other credit eligibility rules.

Congress and the IRS could make documentation rules more flexible so it’s easier for families to comply with—and for the IRS to administer—the residency test. Taxpayers can struggle to provide the correct documentation to prove that a child meets this test if they’re audited. The residency test is also difficult for the IRS to administer, in part because there are no noninvasive sources of accurate and timely information about where a child lives during the year.

To remedy this, Congress could make the residency test documentation rules more flexible. For example, the National Taxpayer Advocate has recommended the IRS adopt “third-party affidavits” (PDF), which are written statements in which someone attests to the living arrangement of taxpayers they know. The IRS could accept similar documents proving a child’s residency, which could be signed by friends, neighbors, and other community members.

Bilal recently became the sole caregiver of a family member, Fatima, who needs full-time assistance. So, he quit his job as a teacher and started working as a driver for food delivery and rideshare companies to have a more flexible work schedule. 

When Bilal was a teacher, his employer automatically withheld his income and payroll taxes from his paychecks, meaning he was paying his taxes on his income as he earned it. So, when he filed his tax return, he often got some money back because he had too much withheld by his employer throughout the year. Now, because he’s classified as an independent contractor in his new jobs, he is responsible for setting aside enough money to pay both his income and self-employment taxes.

When Bilal filed his first tax return after starting his gig work, he was surprised that not only was he not getting a refund, but he owed taxes. The amount he owed was less than what he owed when he was teaching, but it was now due all at once, as opposed to being withheld and paid throughout the year. And because he hadn't made estimated tax payments during the year, he also had to pay a penalty—none of which he could afford.

How to address this

People like Bilal who work multiple jobs, including gig economy jobs or jobs that pay cash, may struggle to accurately report their income on tax returns. Worse, if they haven’t paid their taxes throughout the year—through withholding or estimated tax payments—their taxes will be due all at once, instead of spread out throughout the year. This large, unanticipated payment may be beyond the means of many families with low incomes. Congress and tax officials have several ways to ensure the tax system better serves these workers.

The IRS could create more tailored supports for gig workers. Taxpayers like Bilal who have not made required estimated tax payments can be surprised at what they owe, not only in income taxes but also in self-employment taxes. Further, gig workers must navigate complexities in preparing their tax returns, such as understanding what deductions they’re allowed to take or how much to pay in estimated tax payments, especially if their income fluctuates. They may turn to the internet for advice and wade through significant misinformation on social media. 

But more and better-targeted tax services could help. In partnership with community-based social services organizations, VITA sites, and private tax prep providers, the IRS could design tailored resources for workers in the gig economy, who are increasing in numbers.

Congress could require certain gig economy businesses to do mandatory tax withholding. For gig workers, making estimated tax payments and figuring out what they owe in taxes can be confusing—and can be made worse by irregular payment due dates. Congress could consider requiring gig economy platforms, like food delivery and rideshare companies, to automatically withhold a reasonable share (15 percent, for example) of their independent contractors’ earnings from their paychecks throughout the year. Though those workers would receive smaller paychecks throughout the year, they could avoid big financial shocks during tax season.

A more modern and effective tax system that serves all families is possible

The families above may be fictional, but their challenges with the tax system are not.

Their stories have the power to help policymakers and tax officials keep all families front of mind when they make tax reforms. Making child-claiming and earnings rules for the EITC and the CTC more flexible, offering better education and outreach about tax filing and tax credits, and reducing administrative burdens is feasible and would help all children and families across the US thrive.