States are often laboratories of democracy – deploying novel economic policy experiments that can spur federal government action. But the reverse can also happen. In the second half of 2021, the federal government successfully advanced monthly Child Tax Credit (CTC) payments to millions of Americans. That six-month demonstration sparked an evolution of Minnesota’s state-level CTC, which will now include advanced payments.

In July 2021, the federal government expanded the CTC from a maximum credit of $2,000 per child under 17 to a credit worth up to $3,000 for children ages 6 to 17 and up to $3,600 for children under age 6. The credit was made fully refundable: Even very low-income families received the full value of the credit (typically, millions of families access only a partial benefit). But just as important for families struggling to pay regular bills, up to half the credit  was delivered in monthly payments before they filed their tax returns.

Research shows that advance payments helped families pay school related expenses as well as provide protections against day-to-day hardships for half the year. They reduced food insecurity and child poverty.

While the federal CTC returned to its pre-2021 rules after just one year, Minnesota took the 2021 rules as inspiration and in 2023 passed the largest state-level CTC in the nation ($1,750 per child under 18). Like the expanded federal CTC, Minnesota’s credit is fully refundable. And, starting in 2025, families can have up to half of their anticipated credit advanced in three monthly payments in July, September, and November. 

The 2021 federal CTC advanced payments automatically, but Minnesota families will have to opt in to receive the next year’s credit in advance when they file their tax returns. This opt-in schedule will come at a time when most families can predict who will be in their tax unit at the end of the year, as I noted in prior work where I suggested a similar plan to advance the federal CTC. 

Full refundability, which allows even very low-income families to receive the full benefit, simplifies advanced payments. When a credit phases in, a future reduction in earnings can result in families qualifying for less credit. This risk of overpayments, which families would have to repay, can make them hesitate to opt into the program. Full refundability of the Minnesota credit avoids this risk. 

But Minnesota families can still see their expected credits drop if children move out of their home. Previously, Urban Institute researchers estimated about 8 percent of low-income families would see credits drop from one year to the next from children moving. Children moving among caregivers is more common among low-income families, especially single parents and cohabiting couples. Although there is a hold harmless provision in Minnesota’s credit, allowing some families to receive half the credit they were eligible for the prior year, families risk needing to pay back advanced credits if the number of children in their tax unit declines.

Some families also could see their Supplemental Nutritional Assistance Program (SNAP) benefits drop if they opt in to advance payments (link added Dec. 31, 2024).

Federal lawmakers have continued to show support for advancing the CTC. For example, members of 118th Congress introduced both the American Family Act (H.R. 3899) and the Working Families Tax Relief Act of 2023 (S.1922) this past year; the bills supported advanced payments. And the Biden administration proposed advance payments in its fiscal year 2025 budget. Advance payments are also preferred by many low-income families. 

When a policy window for this opens again, Minnesota might well serve as a laboratory for democracy, delivering new lessons in advancing credit payments.

From December 2023 – December 2024, Elaine Maag was the Tax Policy Advisor in the Equity Hub of the US Department of the Treasury.