Refundable Tax Credits

Income and work supports may be provided through the tax system as well as through benefit programs. The most important tax credits for low-income households are the refundable Earned Income Tax Credit and the Child Tax Credit (credits that together lifted an estimated 8.7 million people out of poverty in 2011), and the partially refundable American Opportunity Tax Credit, which reduces the cost of postsecondary education.  These credits were improved by the 2009 American Recovery and Reinvestment Act, and these improvements were extended through 2018 by the American Taxpayer Relief Act of 2012. 

Mar 18, 2016  |  PERMALINK »

Young Child Tax Credit Would Offer Help during a Critical Developmental Period

By Helly Lee

This month, Congresswoman Rosa DeLauro (D-CT) introduced the Young Child Tax Credit Act, which would provide families that have young children under the age of 3 with an additional $1,500 refundable tax credit per child, with no minimum income threshold. The bill would also establish a program for making advance payments of the credit—rather than paying a lump sum at tax time—allowing the credit to be used for ongoing needs. For example, if the credit were paid in monthly installments, families would receive $125 a month for each qualifying child.

A Young Child Tax Credit could help working parents who are struggling to make ends meet. Increased investment for families with young children is important because these first few years of life are a critical developmental period. In addition, infants and toddlers require both the care and attention of their parents and more material needs such as diapers, formula, and child care, which is more expensive for infants. Children growing up in poverty may experience hardships such as food insecurity and inadequate health care or housing. Poverty can also create pressure and stress on parents that can interfere with all aspects of their life, including their parenting. Young children in poor families face negative impacts in early development that can have lasting consequences for their future health, education, and economic success. Interventions at this early part of a child’s life are critical and can have particularly high pay offs.

The Young Child Tax Credit would also build on the success of other existing tax credits for working families such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), which are critical supports that help families make ends meet and have been shown to promote work, reduce poverty and support children’s development in the short and long run.

Proposals such as the Young Child Tax Credit can have deep impact on the lives of low-wage earning parents and their young children. A Center for American Progress paper shows that a Young Child Tax Credit would reach several disadvantaged groups of children who are underserved by the current CTC because their caregivers tend to have disproportionately lower earnings. Two-generational approaches that focus on the needs of both parents and children – in this case, helping low-income working parents access additional resources for their young children – increasingly are becoming recognized as an effective model to support families living in poverty. While $1,500 a year will not meet all of a young child’s needs, when that amount is coupled with expanded investments in child care assistance and other supports including the EITC and CTC, these resources can go further to make a difference in the lives of our country’s youngest children.

CLASP applauds Representative DeLauro for her leadership in proposing this important investment in supporting young children and their families during the critical early years.

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