800,000 Kids in Veteran Families Are Left Out of Full Child Tax Credit

On this upcoming Veteran’s Day, we should honor our veterans by ensuring that they can afford housing, health care, food, and other basic needs. While families led by veterans on average have higher incomes than those led by non-veterans, there’s still a subset of veterans who struggle with the transition back to the civilian workforce.

The Child Tax Credit, a partially refundable tax credit, is an essential resource to help families meet the recent rise in costs, including many families headed by veterans. However, over 800,000 children under age 17 in veteran families, most of whom are in working families, will either receive no Child Tax Credit or only a portion of the full $2,200 credit, as their families’ incomes are too low. Without the full credit, these veteran families will find it even harder to meet their basic needs. (See table below for a state-by-state breakdown of children in veteran families left out of full credit.)

As part of the harmful Republican megabill, which takes food assistance and health care away from millions of people while showering large tax breaks on the wealthiest households, Congress made many of the 2017 tax law’s changes to the Child Tax Credit permanent, as well as some additional changes, including:

• increasing the maximum credit from $2,000 to $2,200 for 2025;
• adjusting the maximum credit for inflation starting in 2026 (though IRS tax parameters show the maximum will remain at $2,200 for 2026); and
• taking eligibility for the credit away from children who are U.S. citizens or have a lawful immigration status if they don’t have at least one parent with a Social Security number (affecting roughly 2 million children by one estimate).

Unfortunately, the megabill did nothing to address the upside-down structure of the credit. Specifically, the law left in place the slow 15 percent phase-in rate for earnings above $2,500 and the lower maximum credit amount for families with low incomes, often called a “refundability cap.”

This upside-down phase-in structure denies 19 million children in low- and moderate-income families in the U.S. the full $2,200 Child Tax Credit, including 800,000 children in veteran families. The majority of these 19 million children are in households led by someone who does work for low pay or who may be out of work for part of the year due to unemployment, illness, caregiving, or other reasons. The law’s changes provided no benefit to 17 million of these children, and the other 2 million children will receive less than the full $200-per-child benefit increase.

The megabill’s changes will significantly impact veteran families with low and moderate incomes. Take a single veteran who has three kids aged 1, 3, and 5 and works as a security guard making $29,800 this year. After the megabill’s changes, she will see no benefit from the increase in the Child Tax Credit, receiving $4,713. Contrast this with a higher income family making $200,000 with three kids, who will receive $600 more than under prior law, or the full expanded Child Tax Credit worth $6,600. 

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Last year, the House passed a bipartisan bill, co-sponsored by House Ways and Means Chair Jason Smith and Senate Finance Chair Ron Wyden, that would have structurally improved the Child Tax Credit in a number of ways. The bill would have increased the credit amount for the vast majority of the children previously left out of the $2,000 credit and lifted at least half a million of them out of poverty when fully in effect.

Many studies on tax credits similar to the Child Tax Credit find evidence linking the additional income to improved health and educational outcomes during childhood, and increased educational attainment, employment, and earnings in young adulthood.

Congress should act to address the current upside-down structure of the credit and deliver needed benefits to the 19 million kids left out of the full $2,200 credit, including the 800,000 children in veteran families. Receiving the full credit will help veteran families to afford their basic needs and support veterans in the transition to civilian life.