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Momentum for New and Expanded State Child Tax Credits, Earned Income Tax Credits Continued in 2023

| By and Amelia Minkin

2023 legislative sessions saw strong momentum toward creating and expanding child tax credits. Three states created a new permanent child tax credit, one created a one-time child tax credit payment, and seven states improved existing child tax credits. These efforts build on the success of the federal Child Tax Credit in reducing child poverty and improving outcomes for children in the near and long term.

Many states this year have also improved their earned income tax credits (EITCs). State EITCs, like the federal EITC, boost incomes for people paid low wages and provide greater support for people caring for children, helping them better make ends meet and thrive in the long run, research has found.

Because people of color, women, and people who immigrated to the U.S. are overrepresented in low-paid work and in families with little to no earnings, these two state credits are important tools for advancing equity.

In total, 18 states established or improved either a child tax credit or EITC this year. Those states include:

  • Colorado, which made its child tax credit fully available to families earning little to no income. The child tax credit is now worth up to $1,200 per child under age 6. The state also expanded its state EITC from 25 to 38 percent of the federal EITC.
  • Maryland, which increased the income limit for families to receive the child tax credit and made all children under age 6 eligible. The state also made previous EITC expansions permanent and enabled people not claiming children on a tax return to receive the full credit value.
  • Minnesota, which established a permanent, refundable child tax credit and increased the size of its Working Family Credit, as its state EITC is known. The new child tax credit will be worth up to $1,750 for each qualifying dependent under age 18, the highest of any state’s child credit to date.
  • New Jersey, which expanded its existing child tax credit by doubling the credit available for families with incomes of up to $80,000 to a maximum credit of $1,000 per child.
  • Oregon, whose legislature passed a new refundable child tax credit worth up to $1,000 per dependent under age 6. Governor Tina Kotek is expected to sign the bill.

14 States Have Adopted Child Tax Credits; 31 States, D.C., and Puerto Rico Have Adopted EITCs

*Refundable earned income tax credits (EITCs) give working households the full value of the credit they earn even if it exceeds their income tax liability.

*Refundable child tax credits are fully available to families with little or no earnings in a year. For details, see appendices in “States Can Enact or Expand Child Tax Credits and Earned Income Tax Credits to Build Equitable, Inclusive Communities and Economies.

Note: Arizona’s Child Tax Credit is a one-time only rebate. Some states have specific rules regarding eligibility for these credits.

Sources: CBPP analysis.

States are also thoughtfully implementing measures that move toward providing people tax credit payments throughout the year, rather than in one lump sum at tax time. The American Rescue Plan recognized this need for flexibility by temporarily authorizing monthly payments of its expanded federal Child Tax Credit, which reduced financial stress and boosted families’ ability to meet their monthly budgets.

At the state level, more frequent tax credit payments could affect recipients’ eligibility for other types of public assistance. For example, in the past the U.S. Department of Agriculture has counted state periodic payments of refundable tax credits as income for the Supplemental Nutrition Assistance Program (SNAP), which could reduce the amount of support people receive from that program.

States offering multiple payments should plan carefully to avoid this outcome and should create a comprehensive outreach plan to notify credit recipients of potential impacts. For example, Vermont’s child tax credit and Oregon’s (when enacted) will both give recipients an option to receive the credit over multiple payments, though the states won’t begin disbursing on that schedule unless the federal government clarifies that these payments won’t affect other types of public assistance people receive. Minnesota’s new child tax credit law gives the state Department of Revenue an option to design an advance payment process. All three states provide the flexibility for people to choose to receive one or multiple payments, a necessary element.

Most state tax systems ask the most as a share of income from families earning the least. Strong and well-designed child tax credits and earned income tax credits can make state tax codes fairer and more equitable while helping families afford the basics and address everyday financial challenges.