Advance Tax Credits Can Help Families Deal With Inflation, Affordability

States can help families afford the rising cost of basic needs by considering legislation that gives families the option to receive tax credit payments in advance. Minnesota is the only state with such an option for its Child Tax Credit. The state has implemented these advance payments thoughtfully and with families’ needs in mind, and other states should follow Minnesota’s example. Offering the option to provide Child Tax Credit payments more than once a year helps these payments better align with the reality of low-paid work, which has unpredictable hours and limited benefits. And like the federal Child Tax Credit paid in advance in 2021, it would support families’ income security throughout the year.

In 2023, Minnesota created a Child Tax Credit worth up to $1,750 per child under 18, among the largest in the nation. The enacting legislation gave the state’s Department of Revenue the option to provide advance periodic payments. Subsequent legislation in 2024 directed the agency to do so, and advance payments launched this tax year. Almost 18,000 families chose this option, and advance payments will benefit 35,000 children in 2025.

To receive advance Child Tax Credit payments in 2025, families had to first be eligible for the 2024 Minnesota Child Tax Credit. The advanced payments of their 2025 Child Tax Credit (which families would usually receive when they file their taxes in early 2026) totaled half of the credit amount they received for 2024. Families received those payments three times during 2025 — in July, September, and November. Families who received the advanced payments in 2025 will file their tax return in early 2026. After they file, they will receive the remaining portion of the 2025 Child Tax Credit they qualify for (see graphic).

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States interested in issuing similar tax credits to families more than once a year should follow the principles guiding the implementation of Minnesota’s Child Tax Credit:

1. Ensure a refundable credit paid out in multiple installments is large enough to be meaningful. Once Minnesota had passed a Child Tax Credit worth up to $1,750, the state then considered periodic payments. States with much smaller credits — especially those that don’t provide the full amount to families with low incomes and regardless of income tax owed — should focus on increasing the size and expanding the eligibility of their credit first.
2. Let families decide how often to receive payments. Some families may wish to receive multiple payments per year to help them cover their costs for food, housing, and other basic needs throughout the year. Others may wish to receive the payments once a year at tax time to help cover large expenses, like a housing deposit or car payment, or may be concerned that receiving advance payments could affect other benefits they receive. Families should have the option to choose what works best for them. This opt-in can be a simple box on the state’s tax form.

3. Protect families from large, unanticipated repayments at tax time. Advance payments are calculated and sent to families ahead of tax time, when families reconcile the tax credit payments they’ve already received with how much they owe in tax. When surveyed, Minnesota families identified potentially needing to repay advance payments as a significant barrier to choosing to receive them.

   Minnesota addresses that issue in two ways. First, the portion of Minnesota’s Child Tax Credit that can be advanced is limited to help prevent large, unexpected bills at tax time. This situation could arise if a family’s income or number of children in the home during the tax year differ significantly from what they anticipated. Second, the legislature created a “minimum credit” in 2024. It protects families from having to pay back these payments if they meet income limits and claim the same number of eligible children.

4. Build a strong partnership between the state’s Department of Revenue and advocates so that policy, implementation, and communications choices reflect families’ lived experiences. Advocates including Children’s Defense Fund-Minnesota, Legal Services Advocacy Project, Minnesota Budget Project, and Prepare+Prosper worked closely with the Minnesota Department of Revenue to ensure successful implementation that reflected the priorities identified by potentially eligible families.
5. Invest in education, outreach, and tax preparation. The state of Minnesota funded grants to nonprofits and Tribal Nations so that families could learn from trusted messengers about this innovative new option, get the information they need to decide whether it is right for them, and access free tax preparation services. This includes whether the advanced payments could affect any other benefits for which the families are eligible.

Advance payments are an important tool state can use to support families with low incomes afford rising costs and achieve financial security. More states should follow Minnesota’s example in implementing them and doing so in a thoughtful manner.