Summarizing the Benefits of the 2021 Child Tax Credit Expansion on Families: What the Data Reveals
The temporary expansion of the Child Tax Credit (CTC) in 2021 was a lifeline for tens of millions of American families, providing crucial financial support to help cover the cost of raising children. These monthly payments provided a much-needed buffer against financial instability for many, especially during the pandemic. The 2021 CTC invested billions of dollars in American families, easing the burden of household expenses like food, clothing, and housing. The expansion also led to a historic improvement in the well-being of children from low-income families, pulling 3.7 million children out of poverty.
The 2021 expansion significantly enhanced the existing CTC policy by:
- Increasing benefits to parents from $2,000 per child to $3,600 per child under age 6 and $3,000 per child aged 6 to 17.
- Making benefits fully refundable rather than phasing them in with earnings, leading to greater benefit increases for the lowest-income families.
- Distributing benefits monthly instead of all at once as an annual tax refund, allowing families to plan and budget more effectively.
Figure 1 shows the size of the 2021 CTC expansion for different families, by number and age of children and by family earnings. The increase in CTC benefits was particularly large for families with the lowest incomes, those with multiple children, and those with children under age 6. Full refundability and the elimination of income requirements were critical in helping families with little to no earnings, who had been excluded from receiving full benefits previously. While the following chart focuses on families with one, two, or three children, the increase in CTC benefits was even larger for families with four or more children.
Between July and December 2021, approximately $15 billion in CTC payments went out to over 35 million families each month, benefiting more than 61 million children. Abundant research—as well as common sense—suggest that increases in household income bring numerous benefits to families and children, particularly those with lower incomes.
When families began receiving monthly CTC benefits, they spent most of the money on necessities like food, housing, child-related goods and services (including school expenses), and paying off debt. Food insecurity dropped by 25 percent after the first payments were distributed in June 2021, along with reductions in financial hardship and a decline in rent and mortgage delinquencies. CTC benefits were especially helpful for Black, Hispanic, and low-income families, who reported larger increases in spending on household necessities.
The 2021 expansion led to a dramatic decrease in poverty, helping reduce child poverty to a record low of 5.2 percent, which represents about 3 million fewer children in poverty. Unfortunately, the fraction of children in poverty more than doubled to 12.4 percent after the expanded CTC expired in 2022. This sharp reversal underscores the critical role that income-support programs play in lifting families out of poverty.
Although the expansion lasted just one year (providing only six monthly payments and a tax credit in early 2022), the income boost helped millions of families make ends meet. Financial stress is a key driver of mental health issues among parents, and the CTC payments helped alleviate some of this pressure. In fact, research shows that the expansion reduced anxiety and depression symptoms among parents with incomes below $35,000 by 2.1 and 1.7 percentage points, respectively. On the other hand, the expiration of the 2021 CTC led to worse economic sentiment (an indicator of how people feel about the economy and their expectations for its future), reflecting the return to more difficult financial circumstances for many families.
The CTC expansion demonstrated that poverty is, in part, a policy choice. While the program is clearly an effective tool for reducing poverty and promoting family well-being, the total cost was substantial, and some critics raised concerns about its potential impact on work incentives. These issues contributed to debates over whether the 2021 version could (or should) be sustained in the long term. Acknowledging these concerns is important in understanding the broader debate about how and whether to expand the CTC and its role in supporting families.
As policymakers debate the CTC’s future, it is important to consider its benefits to families. Future posts will address other issues with important implications for the program’s short- and long-term benefits, including specific proposals and how different CTC reforms might affect work incentives.