Urban Wire The COVID-19 Pandemic Underscored the Child Tax Credit’s Power to Alleviate Family Poverty
Kevin Werner
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In late December and early January, COVID-19 cases reached their highest levels of the pandemic in the United States, inflicting both a terrible human toll and once again disrupting the economy.

Though the December jobs report was strong, it hides problems caused by the most recent spike, during which millions of workers had to miss work because they either had COVID-19 or were caring for someone who did. Furthermore, many parents have had to miss work to care for their children as the number of pediatric COVID-19 cases soars and some schools return to virtual learning. Finally, even where schools remain open, parents may have to stay home with the children who are quarantining after being in close contact with someone infected with COVID-19.

Some of these workers may have been paid for their time away from the job, but workers with low incomes are much less likely to have paid sick days. Only one-third of workers in the bottom 10 percent of earnings have paid sick time, suggesting each surge could widen existing disparities and increase family poverty.

In previous surges, aid from the federal government helped individuals and families weather financial uncertainty. This aid drove down poverty in 2020, even in a year of massive job loss. Projections also show a low poverty rate in 2021, largely a result of federal benefits. The child poverty rate in 2021 is projected to be particularly low, thanks in part to the expanded child tax credit (CTC).

However, during this most recent COVID-19 surge, benefits have faded away. Expanded unemployment insurance expired in September, and the last stimulus checks were authorized almost a year ago. Finally, the last monthly child tax credit payment authorized by the American Rescue Plan Act was distributed in December. Though many families will see a large tax refund in the spring when the second half of the expanded credit is paid out, monthly payments have stopped.

The expanded CTC provided monthly payments of $250 or $300 per child to most American families, for an annual amount of $3,000 or $3,600 per child. Without the expanded CTC, many families will receive lower CTCs and will no longer receive them monthly. The maximum per child is now $2,000 annually.

Without the expansion, the CTC phases in based on earnings, so families without earnings will not be able to receive any CTC benefits, and families with low earnings will not be able to receive the full benefits.

Evidence illustrates that the expanded CTC has been a powerful policy tool for fighting poverty during the pandemic. Even when the pandemic has finally abated, families will continue experiencing bouts of economic uncertainty, so permanently expanding the CTC could provide needed relief for years to come.

The difference an expanded CTC could make

Research shows monthly CTC payments made since July provided substantial relief to families during the pandemic. The first monthly CTC payments reduced food hardship by 25 percent among households with low incomes with children, and other research shows the share of families who had trouble meeting their weekly expenses declined after the first CTC payment was distributed. Survey data also demonstrate that the CTC reduces financial stress among families with children. Reviving the monthly expanded CTC could help combat the economic hardship created by the current COVID-19 surge.

Our research has shown that if the child tax credit were permanently expanded:

  • child poverty would be reduced by more than 40 percent in a typical year, unaffected by other federal aid or pandemic job loss;
  • child poverty would fall by at least 30 percent in every state and would fall by at least 50 percent in 11 states;
  • children of all demographic groups would be better off as well; and
  • child poverty for Black children would fall by more than 50 percent.

Below, we show our estimates for how the expanded CTC would reduce child poverty by state:

 

Maps showing state by state child poverty rates before expansion of the Child Tax Credit and after expansion of the Child Tax Credit. Expansion of the credit would substantially reduce child poverty in every state.

As the pandemic continues to create financial difficulty and uncertainty, economic supports for families have fallen to their lowest point since before March 2020. Reviving the monthly CTC would reduce child poverty and material hardship among families with children. Moreover, the expanded CTC would provide families with economic stability, even once the current COVID-19 surge passes, and would greatly reduce the number of children who would grow up in poverty.


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Research Areas Taxes and budgets
Tags COVID-19
Policy Centers Income and Benefits Policy Center
Research Methods ATTIS Microsimulation Model
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