Noting that rising costs make it harder for families to make ends meet and build a stable future for their children, Senators Maggie Hassan (D-NH) and Todd Young (R-IN) introduced the Stronger Start for Working Families Act in January. The proposal would make one simple change to the child tax credit (CTC) to better support families with very low earnings. Further modifications could help even more of those families.
The change: An immediate phase-in
The bill would begin to phase in the CTC at the first dollar of earnings, rather than requiring families with very low incomes to earn at least $2,500 before seeing any benefit from the credit. Currently, families need to earn about $30,000 to $45,000 before they can get the full $2,200 per child credit (depending on filing status and number of children).
Over the 10-year budget window, TPC estimates the bill would reduce federal revenues by $9.5 billion. It would cut taxes for 3.5 million families with children. Recipients of the reformed credit would see their after-tax income rise by $320 on average.
Families in the bottom 20 percent of the income distribution would receive 85 percent of total benefits (Figure 1, Option 1).
FIGURE 1
Full refundability helps more families, though at higher cost
Even if the Stronger Start for Working Families Act was adopted, many families with children would still get less than the full $2,200 per child CTC. That’s because families must first use their CTC to offset taxes owed. If they qualify for a credit that is greater than the tax they owe, they can receive it as a refundable credit, often called the additional child tax credit (ACTC). The ACTC equals 15 percent of earnings above $2,500, up to a maximum credit of $1,700. This cap on how much of the credit can be refunded prevents many families from receiving the full $2,200 credit.
Other more costly reform options could support this same group of workers with very low incomes and retain the link to work by phasing in the credit more quickly (see options 3 and 4 in figure 1, for example). All of these options would deliver somewhat larger benefits to a larger group of people—but still be highly targeted to families with very low incomes. A more expansive option, the American Family Act, would make the CTC fully refundable, allowing all families with low incomes to benefit from the maximum credit even if they don’t work or owe federal income taxes.
Simplicity helps more families, too
Tax credits for families with low- and moderate-income play an important role in families’ lives. In 2024, the latest year for which information is available, refundable tax credits lifted more children out of poverty than any other program.
But the tax credits are complicated, which makes complying with them difficult. In the case of the current CTC, rather than telling parents they will get the credit if they work at all, parents must work enough to earn at least $2,500.
The Stronger Start for Working Families Act would remove that obstacle. The proposal would provide a welcome benefit to many families.
