23 Million Children Left Behind by Child Tax Credit, Study Shows

Popular tax break leaves out mostly Black and Latinx households

Dad is making a record of all the family's earnings and spending.
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kate_sept2004

Corrects story published on Oct. 12 to remove reference to the Earned Income Tax Credit.

About 23 million children, mostly in low-income families, would benefit if the government removed restrictions on who is eligible for the $2,000 Child Tax Credit, a new study has found. 

The tax break is intended to help families bear the costs of having children, but it is laden with provisions that reduce the ability of low-income households to claim the credit, mostly hurting Black and Hispanic families. Currently, about 6.6 million children live in low-income households that receive no tax credit at all, and a further 17 million only receive partial credit—that’s according to a study conducted by Stanford Law School and Syracuse University, and published Monday by the National Bureau of Economic Research. The vast majority of children living in the bottom 10% of households by income are ineligible for the credit, and those in the bottom 30% can only claim it partially. 

About three-quarters of White and Asian children live in households eligible for the full refund, compared to about half of Black and Hispanic children, the study said. 

“It’s called the Child Tax Credit, which implies that it is given to children, but there are a ton of children who are just totally excluded from it,” said Katherine Michelmore, a Syracuse professor who co-authored the study. “The racial differences were quite surprising to us … In the race-neutral tax code, there are still these striking racial differences and large differences in eligibility.” 

The new study comes as Democratic lawmakers push to temporarily remove one of the restrictions on the child tax credit as part of a $2.2 trillion stimulus package. The latest version of the HEROES Act, passed by the House of Representatives in October but not taken up by the Senate, would make the $2,000 credit fully refundable for the 2020 tax year. A refundable tax credit is one that reduces a person’s tax bill but also makes the person eligible for cash from the IRS if the amount of the credit exceeds the total tax bill. 

Currently, only $1,400 of the credit is refundable, which restricts the ability of households to claim the full credit if they do not pay enough income taxes. If this restriction were removed, about 4.5 million additional children, disproportionately in Hispanic households making up to $31,000 a year, would be eligible for the full credit, according to the study. 

A second major limit to claiming the Child Tax Credit is the earning test. Taxpayers can only claim it if they make at least $2,500 in earned income a year, but they’re only eligible for a refundable credit of 15% of the amount of their earned income that exceeds $2,500. To put this in perspective, these restrictions mean that in order to receive the full $2,000, a single person with one child would have to earn $24,350.

The study found that reforms would help extend the credit to millions more children. “The children we are leaving out are arguably the ones who could benefit the most from having a child tax credit,” Michelmore said. 

Article Sources

  1. National Bureau of Economic Research. "Who Benefits From the Child Tax Credit?" Accessed Oct. 2, 2020.