Child Tax Credits (CTCs) are effective tools to bolster the economic security of low- and middle-income families and position the next generation for success. When designed well, they build on the powerful base of the federal CTC, counteract some of its deficiencies, and lead to meaningful reductions in child poverty and deep poverty.¹

More state lawmakers are choosing to help families in this way: for the 2027 tax year, 16 states will provide Child Tax Credits, many of which are targeted to those who most need them and refundable so children in the lowest-income families receive the full benefits. Together these credits constitute an annual multibillion-dollar investment in the next generation. As more states consider creating or strengthening these credits, lawmakers should design them for maximum impact.

Refundable Child Tax Credits boost the after-tax incomes of qualifying families and offset some of the costs of raising children. These policies are especially important for the economic security and stability of lower-income families, helping them avert unexpected hardship that can threaten basic needs like housing, food, and utilities. Child Tax Credits are associated with reduced poverty, higher financial and household stability, improved child and maternal health, better educational achievement, stronger future economic outcomes, and more.² These benefits are stronger with well-designed credits.

CTCs help families of all races. The largest share of recipients are white children. When designed well, these credits are particularly helpful to the lowest-income families and can ease challenges that hurt poor children and – because of discrimination and other factors – disproportionately harm children in Black, Hispanic, and Indigenous communities.³ Economic inequality, low wages, and child poverty are defining challenges in the U.S. CTCs help address these challenges.

Recent changes to the federal CTC boosted the credit from $2,000 to $2,200 for each eligible dependent under the age of 17. The credit is now also indexed to inflation. It phases out for married couples with incomes above $400,000 and for unmarried parents with incomes exceeding $200,000.

While these changes will move more money to families,⁴ lawmakers failed to address a major flaw in the CTC’s design that prevents many low-income families from receiving the full credit. This means low-income households can only receive $1,700 per child as a refund. Children whose parents or guardians are deemed “too poor”, earning less than $2,500, remain ineligible.

Meanwhile, changes to the federal CTC in 2017 required children to have a Social Security Number to receive the credit, denying 1.3 million children the credit who were previously eligible. Recent federal changes go even further, requiring at least one parent to have a Social Security Number, keeping the CTC from an additional 2.7 million children.⁵

In effect, the federal CTC maintains a trapezoid-like structure where some children are in families too poor to receive any credit, some fall within the phase-in range, some benefit from the full credit, some fall within the phase-out range, and some children do not receive the credit because their families have incomes that exceed the phaseout.

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Since its enactment in the late 1990s, the federal CTC has grown and changed. For instance, the 2017 tax law increased the credit from $1,000 to $2,000 per child through 2025, reshaped it to allow more affluent families to claim it, and began excluding immigrant children without Social Security Numbers.⁶ Before this, all children whose parents met the income eligibility requirements, regardless of citizenship status, received the federal credit.

The American Rescue Plan Act of 2021 (ARPA) temporarily expanded the credit—for 2021 only—to $3,000 for older children and $3,600 for children under 5. It was also reformed to allow monthly credit payments rather than one annual lump sum. Most importantly, it was reworked to reach more children, including nearly one-third of children who live in families too poor to qualify for the credit under permanent law. In 2022, after the credit expansion expired, 45 percent of Black children, 42 percent of Hispanic children, and 23 percent of white children were no longer able to receive the full credit.⁷ Current limits for lower-income families disproportionately leave out children of color.

The expanded version of the federal CTC in effect for 2021 was wildly successful in reducing child poverty, cutting it by 46 percent. It lifted 3.7 million children out of poverty before it was allowed to lapse in 2022.⁸ Research has since shown that low and middle-income households overwhelmingly spent this boosted credit on housing, food, and clothing – a testament to how vital an expanded CTC is to helping families make ends meet each month.⁹ In the absence of federal action to reinstate those reforms, state lawmakers are creating and expanding Child Tax Credits to boost income and opportunities for children and families in their states.

The 2025 federal tax and spending law expanded the Child Tax Credit but took few lessons from the success of ARPA. While the credit amount was increased and indexed to inflation, the bill limited access to immigrant families and did nothing to improve refundability, meaning children whose parents and guardians earn low wages or are unable to work full time are denied the full benefit of the credit.

State lawmakers continue to adopt and expand state Child Tax Credits. Looking ahead to 2027, 16 states will provide these credits to children in their states.

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This year alone, lawmakers in four states created new or expanded existing Child Tax Credits. Lawmakers in Rhode Island passed its first refundable CTC while New Jersey lawmakers improved their existing refundable credit. In Arizona and Utah, lawmakers expanded their existing nonrefundable CTCs.¹⁰

• Rhode Island lawmakers passed the state’s first permanent and refundable CTC of $330 per child under the age of 19. The credit begins to phase out after $88,500 of Adjusted Gross Income (AGI) for single filers and $110,640 of AGI for married filers. The credit will be paid for in part by a new higher income tax brackets on high earners.¹¹
• New Jersey lawmakers increased the state’s credit amounts by 25 percent, boosting the maximum allowable credit from $1,000 to $1,250. The expansion expires in 2028 unless extended or made permanent.
• Arizona increased its nonrefundable CTC by $25, bringing the maximum credit to $125 per dependent.
• Utah expanded the income thresholds to qualify for their nonrefundable $1,000 CTC from $43,000 to $49,000 for single filers and $54,000 to $61,000 for married filers.

Meanwhile, one major CTC expansion remains uncertain.

The District of Columbia was poised to enact its first Child Tax Credit of $1,000 per child under 18 in Tax Year 2025. This was possible because lawmakers passed legislation in February 2026 decoupling from multiple provisions in the 2025 federal tax law, thereby raising enough revenue to pay for the CTC. But Congress got in the way. Federal lawmakers tried to override the District’s law, although many observers note that Congress failed to act within the required timeframe. The legal uncertainty, in addition to slow local revenue collections, kept D.C. lawmakers from following through on debuting the new CTC.

As lawmakers continue to deal with the fallout of the new federal tax and spending law, and in some cases steep and consistent state level tax cuts, some will look to cut existing programs and credits that are designed to help children and families. States should avoid removing policies that benefit those most likely to be harmed by economic uncertainty. State CTCs play an important role in state tax policy and complement broader efforts to support children and families, reduce poverty, and raise incomes of low- and middle-income families.

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While most states have created CTCs that are independent of the federal Child Tax Credit, Oklahoma’s credit remains a nonrefundable credit worth 5 percent of the federal CTC or 20 percent of the federal Child and Dependent Care Credit.¹² Ultimately, the nonrefundable nature of the credit means it cannot be used by lower-income families who have little state income tax liability but pay substantial amounts of sales, excise, and property taxes.

Given its connection to the federal credit, Oklahoma’s CTC is uniquely exposed to the whims of our federal lawmakers. For instance, new regulations from the U.S. Treasury could remove certain immigrant groups from claiming the refundable portion of the federal CTC, which could impact the amount able to be claimed at the state level for those groups in Oklahoma.

The lapse of 2021’s federal Child Tax Credit enhancements has inspired a string of state actions and should continue to do so going forward. In the absence of additional action by Congress, states have several options to strengthen economic security and child wellbeing through new or expanded CTCs. Lawmakers should design these state CTCs with an eye toward equity by ensuring that the credit reaches as many low- and moderate-income children as possible.

The advantage of implementing a credit separate from the federal CTC is that states can avoid the shortcomings of the federal credit (particularly the earnings requirement and lack of full refundability) that keep many lower-income families from receiving the full benefit. Instead, states can use their flexibility to determine the scope and scale of their credits without these restrictions.

That flexibility allows state lawmakers to:

• Make the credit fully refundable. Refundability is key to the CTC’s success. If a credit is refundable, taxpayers receive a refund for the portion of the credit that exceeds their income tax bill. Refundable credits help offset all taxes paid, not just income taxes, mitigating some of the regressive effects of state and local sales, excise, and property taxes.
• Avoid an earnings requirement. Earnings requirements mean that families with lower earnings get a smaller credit or no credit at all, paradoxically excluding the kids with the greatest needs from a policy meant to help children.
• Set a maximum amount per child, rather than per household. This ensures children in larger families are not penalized.
• Provide more robust credits to younger children. This reduces child poverty in the early, formative years when families confront significant expenses and caregiving responsibilities that require additional financial resources.
• Set state-specific phase-out ranges that better target the credit to low- and middle-income families. Setting a phase-out range lower than that of the federal credit enables states to reach families in need while dramatically reducing the cost to state budgets. If lawmakers are most interested in poverty reduction, an administratively simple approach for states with Earned Income Tax Credits could be to mirror EITC phase-outs, creating a tightly targeted state CTC. Designing effective credits results in a range of tradeoffs. If looking to reduce the cost of a state CTC, tighter, state-specific phaseout ranges are an important and strategic consideration.
• Index the credit to inflation so it does not erode over time. Whether and how policies are indexed for inflation has major implications for their power to improve economic wellbeing and reduce poverty over the long run.¹³
• Make the credit available on an advanced or monthly basis. Research shows that monthly cash payments reduce poverty and keep it lower year-round.¹⁴ This provides families flexibility to meet financial needs in real time and prevent the accumulation of debt. Minnesota became the first state to implement the option for advanced payment in 2025.
• Include all children, regardless of immigration status, in credit eligibility. Under 2017 changes to federal law, children without Social Security Numbers are excluded from accessing the federal CTC. Most states with CTCs have chosen to adopt more inclusive policies and make their CTCs available to all children whose parents meet income eligibility requirements, regardless of citizenship status. However, lawmakers should use caution given recent drastic shifts in policy that have fundamentally changed the nature of immigrants’ relationship with the tax code and tax filing.¹⁵
• Ensure the credit is permanent and not dependent on unpredictable revenue. CTCs are most impactful when they are consistent and families can depend on the boost to income year after year. Permanent CTCs also ensure families and children are continuously prioritized in state budgets.
• Local governments should also consider enacting local CTCs to supplement the benefits of the federal and, in many cases, state CTCs.¹⁶ 

States can piggyback CTCs on top of federal rules at a flat percentage rate, as many do with their EITCs. For example, a state CTC calculated as 10 percent of the federal CTC would amount to a $220 state credit in 2026 for any child who receives it in full. This offers a relatively simple template for states but has significant drawbacks including the relatively high income thresholds for eligibility.

The worst feature of the federal CTC is that children in many families are deemed too poor to receive the full benefit. Even if state lawmakers choose to conform to the federal CTC broadly, they should take care not to amplify this inequity and should establish a minimum, refundable benefit for lower-income families.

State lawmakers can make up for the main shortcoming of the federal CTC by ensuring that children in families too poor to receive the full federal credit are brought up to the full $2,200 amount, or to some portion of that amount. This ensures that a state’s lowest-income children are not left behind. Of these three options, this is the most carefully tailored to reach only those families in the most vulnerable economic circumstances. As a result of its narrower reach, this option could also cost less than the other proposals, which may be appealing to some lawmakers concerned about the budgetary impact of more expansive CTC proposals.

Under any of these options, states should explore advanced or monthly payments in addition to annual payments. Recent federal experience suggests that this approach can play a role in meaningfully reducing child poverty, improving economic security, and enhancing families’ ability to meet their basic needs.¹⁷