Changing this tax credit could further reduce child poverty

Gabriella Cruz-Martinez
·Reporter
·6 min read
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Key adjustments to the Earned Income Tax Credit (EITC) could help lift millions of children out of poverty in the U.S., according to a new study, especially helping Hispanic children and children in immigrant families.

Increasing the EITC benefits by 40% and dropping the Social Security number requirement would lift 2.09 million children from poverty, according to a study led by DiversityDataKids.org, an initiative of Brandeis University.

That would result in a 23% poverty reduction for all children in the U.S. with a 28% poverty rate drop for Hispanic children, a 37% decline for citizen children in mixed-status families or households with an undocumented member, and a 18% drop for noncitizen children in mixed-status families or households with an undocumented member.

The research builds on a 2019 report underscoring how immigrant families continue to register among the highest poverty rates, with the current EITC requirements excluding 1.89 million children in immigrant families.

“The EITC is one of the main programs that we have in the U.S. that is among the most effective programs for reducing child poverty,” Dolores Acevedo-Garcia, director of the Institute for Child, Youth and Family Policy at the Heller School for Social Policy and Management at Brandeis University and co-author of the study, told Yahoo Money. “Yet, one of the very serious gaps is that it excludes many immigrant children and families and that has not nearly been discussed enough.”

Roxanna Villa, 25, with daughter Miranda Villa, age 6, and son Dustin Serrano, age 1, in her home. She was able to buy the house due to the earned income tax credit, a lucrative break for the working poor. (Credit: Gary Friedman/Los Angeles Times via Getty Images)
Roxanna Villa, 25, with daughter Miranda Villa, age 6, and son Dustin Serrano, age 1, in her home. She was able to buy the house due to the earned income tax credit, a lucrative break for the working poor. (Credit: Gary Friedman/Los Angeles Times via Getty Images)

Who has access to EITC

The Earned Income Tax Credit is available to low- to moderate-income working households whether or not they have qualifying dependents.

In the 2018 tax year, the EITC reached 22 million working families and individuals. According to the Center for Budget and Policy Priorities, it also lifted an estimated 5.6 million households from poverty, including 3 million children, reducing child poverty by more than a quarter in the U.S. In combination with the Child Tax Credit, the EITC lifted another 16.5 million people and 6.1 million children from severe poverty.

The credit also has bipartisan support, Acevedo-Garcia said, “because the program is based on work. It’s meant to supplement earnings and encourage work.”

For instance, the credit amount depends on earned income, filing status, and number of dependents per household. For 2021, qualifying dependents include children under the age of 19, students under age 24, or dependents with a disability.

Teacher and a group of elementary school kids at a bus stop
Teacher and a group of elementary school kids at a bus stop

According to the Internal Revenue Service, folks with one child could get up to $3,618 in refundable tax credits and those with three or more qualifying children, up to $6,728.

While the EITC rules changed for the 2021 tax year by increasing the amount of credits and eligibility rules for taxpayers with no qualifying dependents — researchers argue that more needs to be done to reduce child poverty.

According to the report, children with an undocumented family member, who make up 18% of children in poverty in the U.S., aren’t eligible for the EITC – even when their parents or guardians work and pay taxes and when the children are U.S. citizens.

That’s because you need to have a Social Security number to qualify for the EITC. An exclusion implemented in 1996, which requires all family members to have Social Security numbers to receive the credit, leaves out millions of mixed-status, tax-paying families from accessing the EITC.

“If just one person in the family that is filing the tax return does not have a Social Security number, then the Earned Income Tax Credit is denied to the family. It doesn’t matter if the kids are citizens and they have a SSN,” Acevedo-Garcia said. “We want to make the EITC have the same eligibility rules that the Child Tax Credit already has. Something incredibly frustrating for me is that we are not talking about radical change in social policy — it’s just incorporating the rules that already exist to expand equitable access.”

Reducing child poverty

To expand the EITC, the study tested three policy changes that would reduce child poverty.

In the first test, researchers analyzed increasing the EITC benefit by 40%. Under that scenario the maximum credit for a family with two children would increase from $5,980 to $8,372. This alone, while effective, did not equitably reduce poverty levels for all groups.

The proposal would lift 1.34 million children from poverty, reducing the poverty rate by 15%. The poverty rate would fall 8% for citizen children in mixed-status families, 6% for noncitizen children in mixed-status families, 1% for citizen children in families with undocumented members, and 0% for noncitizen children in families with undocumented members.

Hispanic children would see an 11% poverty reduction, compared with a 18% reduction for white children and 19% reduction for Black children.

(Credit: diversitydatakids.org; Brandeis University)
(Credit: diversitydatakids.org; Brandeis University)

In the second scenario, the EITC was increased by 40% and the SSN requirements were eliminated for parents, but not for children.

The results showed that approximately 2.02 million children would be lifted from poverty, reducing the poverty rate by 22%. This also had a larger effect on citizen children in mixed-status families or households with an undocumented member.

The poverty rate would decline 33% for citizen children in mixed-status families, 9% for noncitizen children in mixed-status families, 42% for citizen children in families with undocumented members, and 7% for noncitizen children in families with undocumented members.

The Hispanic children poverty rate would drop by 27%, compared with 19% for white children and 20% for Black children.

(Credit: diversitydatakids.org; Brandeis University)
(Credit: diversitydatakids.org; Brandeis University)

In the third and final scenario, the credit was expanded by 40% and the SSN requirements were eliminated for both parents and children. Under this test, an estimated 2.09 million children would be lifted out of poverty, shrinking the overall poverty rate for children by 23% — and especially helping noncitizen children.

The poverty rate would decrease 34% for citizen children in mixed-status families, 16% for noncitizen children in mixed-status families, 4% for citizen children in families with undocumented members, and 23% for noncitizen children in families with undocumented members.

The poverty rate for Hispanic children would fall by 28%, versus 20% for white children and 21% for Black children.

“We could reduce child poverty rate substantially for citizen children that live in families with undocumented family members, if we made those families eligible for the EITC,” said Acevedo-Garcia. “That has very broad implications, obviously, for those kids and for Hispanic families because a very large number of Hispanic kids, especially Hispanic kids in poverty, are citizen children that live in families with undocumented members.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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