As Childhood Poverty Rises, the Child Tax Credit Remains a Crucial Benefit for California’s Youngest Children

By Jaren Gaither

Senior Policy Research Associate

With tax season approaching, it is important to highlight the programs that help lower income families with young children receive much needed financial assistance. The federal Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) are responsible for lifting millions of children and their families out of poverty. In addition to these federal credits, California has its own versions of the EITC and CTC called the California Earned Income Tax Credit (CalEITC) and the Young Child Tax Credit (YCTC). These credits are more important than ever as childhood poverty in California is on the rise. As of fall of 2023, approximately 13.8 percent of children ages birth to 5 in California were living in poverty. This represents a more than 50 percent increase in the birth to 5 childhood poverty rate since 2021.

The expiration of federal COVID-era social supports expansions, like the CTC, is one reason for the sharp increase in poverty rates. In the summer of 2021, President Biden signed a bill increasing the amount a family could receive for the CTC from $2,000 per child to $3,000 per child, or $3,600 per child under the age of 6. However, this increase expired at the end of 2021, and the federal CTC reverted to $2,000.

Since the federal CTC expansion expired, the number of California families with children ages birth to 5 who reported experiencing difficulties paying for basic needs has increased by almost 60 percent. Furthermore, Black and Latinx children are continually overrepresented within the state’s poverty data in comparison to their non-Hispanic White counterparts. This increase and disparities are alarming, especially as the state has signaled it has no plans to further invest in its YCTC due to the projected $35 billion budget shortfall.

California’s YCTC is an essential social safety net for low-income families with young children because, unlike the federal CTC, California’s YCTC is a fully refundable tax credit that provides families with children ages six and younger with up to $1,117 per eligible tax return. Combined with the federal CTC, these two tax credits collectively support hundreds of thousands of California families with young children to afford their basic needs. Despite California’s relatively robust economic and social supports system for lower-income families with young children, the current levels of support offered are insufficient for many families. A California family interviewed by Stanford's RAPID Survey Project said, “Child care and food are incredibly expensive. We dip into savings most months to cover basic necessities.”

Childhood poverty can have profound and lasting effects on childhood development. Children growing up in poverty are more vulnerable to adverse childhood experiences (ACEs) such as abuse, neglect, household dysfunction, and chronic stress. The financial and economic hardship experienced by lower-income families struggling to pay for basic necessities can contribute to stressors within the family environment that increase the likelihood of these adverse experiences. Moreover, ACEs have been found to have detrimental effects on children’s mental, physical, and behavioral development.

As lower-income Californians submit their tax returns this spring, many could find themselves eligible for increased benefits under the federal CTC. On January 31, 2024, the United States House of Representatives passed a bipartisan tax package titled the Tax Relief for American Families and Workers Act, otherwise known as the TRAFW Act. The bill currently resides in the Senate, awaiting action from lawmakers. The bill includes $33 billion to expand access to the federal CTC and increase the credit families receive. The bill would only be on the books for three years, at which time it will be up to Congress to again decide whether it wants to continue prioritizing the economic stability of millions of young children living in poverty.

Investing in economic supports such as the federal CTC and California’s YCTC is a crucial poverty-fighting tool that can work to combat the ACEs associated with growing up and living in poverty for many young children. As one of the few states with its own CTC, California is also in a position to make its own YCTC more generous and expand eligibility to ensure all California children and their families have the means to afford necessities like food, housing, and child care.

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