Maryland Families Need a Strong, Permanent Child Tax Credit

With today’s state filing deadline putting taxes on many Marylanders’ minds, there’s no better time to remind policymakers of the need to permanently improve the federal and state child tax credits. The Child Tax Credit (CTC) is among the most powerful policies available for reducing economic hardship, and research links higher family income to lasting improvements in children’s health, education, and future earnings. Policymakers took important positive steps in 2021 – significantly expanding and improving the credit at the federal level, and newly creating a state CTC here in Maryland – but have since allowed us to slide backward. Congress should act quickly to make the American Rescue Plan improvements to the CTC permanent, and the Maryland General Assembly should expand the state CTC during its 2023 session.

The Federal CTC: Progress, Backsliding, and Opportunity

Last year’s American Rescue Plan made major – but temporary – improvements to the federal CTC:

  • Ensured that very low-income families who previously received no credit or a small partial credit were eligible for the full credit.
  • Restored eligibility for immigrant children who were excluded from the credit as part of the Trump tax bill in 2017.
  • Raised the maximum credit for children ages 6 and over to $3,000 and for children under 6 to $3,600 (up from $2,000).
  • Created monthly advance payments so that families can benefit from the additional funds right away.

These temporary reforms provided a vital economic lifeline to about 1 million children across Maryland and lifted more than 50,000 children above the poverty line. Analysis by the U.S. Census Bureau found that monthly CTC payments reduced the number of families that went without food or struggled to cover other expenses.

Last year’s expansion was particularly important for 353,000 Maryland children who previously were partly or fully excluded from the CTC because their parents’ income was too low:

  • 148,000 Black children
  • 85,000 Latinx children
  • 82,000 white children
  • 13,000 Asian children
  • 24,000 children in other racial groups

But those monthly payments stopped in January because of Congress’s failure to pass President Biden’s Build Back Better plan. This cut off needed support for most families with children in Maryland and once again locked out hundreds of thousands of children who needed help the most.

Congress still has a chance to make things right. Sen. Mitt Romney has proposed an overhaul of the CTC that would improve on the current credit in several ways, and could pave the way for a bipartisan compromise. However, the Romney plan has major weaknesses:

  • While the Romney plan provides more assistance to families with very low incomes than the current CTC, it still denies these families the full credit and locks many children out altogether.
  • The proposal forces families to jump through more administrative hoops, for the first time denying benefits to caregivers who live with a child but do not have legal custody, or those who do not have a Social Security Number, even if the child does.
  • Romney proposes to pay for the increased CTC by cutting other income supports for families with children, such as the Earned Income Tax Credit. Altogether, families with children bear nearly three-quarters of the plan’s costs.

Despite its serious flaws, this plan is an improvement over the status quo. Lawmakers should work to put the strongest possible CTC expansion on President Biden’s desk this year, and should ultimately make the American Rescue Plan reforms permanent.

The State CTC: A Strong Foundation with Room for Improvement

The Maryland General Assembly created a modest state CTC in 2021. Children under 17 who have a disability are eligible for a credit of up to $500 if their family income is less than $6,000. This credit is reduced by the amount of federal CTC the family receives. The credit is valid only for tax years 2020 through 2022 (meaning that families can claim the credit when they file their taxes in 2021 through 2023). Legislative analysts estimated that the credit would cost about $1 million per year.

Sen. Nancy King and Delegate Julie Palakovich Carr this year introduced a bill that would have expanded the credit and extended its sunset:

  • The credit would be available for families with income under $15,000, up from the current $6,000 limit.
  • The credit would be available to all children up to age 5, while maintaining eligibility for children with disabilities up to age 16.
  • The credit would be a flat $500 per child, with no reduction for federal CTC benefits.
  • The credit would be valid through tax year 2026 (returns filed through 2027).

Legislative analysts projected that this bill would cost about $12 million per year through FY 2027.

Lawmakers took no action on this bill.

Passing this expansion should be a top priority during the 2023 legislative session, to ensure Maryland children with disabilities do not lose their current benefits and to provide additional support to families with young children.

At the same time, lawmakers can and should go much further in supporting kids across Maryland. The state’s fiscal position is historically strong, with projected structural surpluses averaging $563 million through FY 2027. Especially if Congress does not act, lawmakers should consider bolder CTC improvements, such as:

  • Increasing the family income cap: The federal poverty line for a family of four is $27,750, nearly double the income cap in the King bill.
  • Increasing the benefit level: While $500 is a meaningful income boost, it will still leave many families struggling to make ends meet. A larger credit would bring bigger benefits.
  • Including more children: While young children and children with disabilities are good choices for a narrowly targeted credit, many thousands of Maryland children outside these groups would also benefit from a boost to family income.