Congress considers making the federal Child Tax Credit refundable; Hawaiʻi considers Keiki Credit

In the last week of January, a bipartisan group of Representatives in the U.S. House passed H.R. 7024, a tax package that included expansions to the federal Child Tax Credit (CTC). If this bill becomes law, its changes to the CTC could keep an additional 500,000 children in the U.S. out of poverty by 2025.

The federal CTC was temporarily expanded in 2021, and the amount of the credit was increased from $2,000 per child to up to $3,600 for any child under the age of 6. This expansion lifted 2.9 million children across the U.S. out of poverty. However, the expansion was not extended past the end of 2021, and after it expired, child poverty more than doubled.

Although H.R. 7024 would not increase the CTC amounts on paper, it would make the CTC refundable (like Hawaiʻi’s Earned Income Tax Credit), just as it was during 2021. In this way, the lowest-income families would receive the full value of the CTC, even if they do not owe much in taxes. Currently, in the case of a non-refundable ax credit, a taxpayer who qualifies for a $4,000 CTC (with two eligible children)—yet owes $2,000 in income taxes—can only claim $2,000 of that credit. Nonrefundable credits can only reduce tax liability to zero; they cannot deliver an actual cash refund. In other words, a family with only $2,000 in tax liability loses half the value of the credit it deserves.

With the refundability offered in H.R. 7024, this same household would be able to receive an actual cash refund of $1,800 in 2023, rising to $2,000 by 2025, in addition to the tax liability reducation to zero. In addition, the federal CTC would be adjusted for inflation beginning in 2025, automatically boosting the amounts that families can receive every year. H.R. 7024 is a reminder that the Child Tax Credit is a widely popular program with proven anti-poverty benefits. (Unfortunately, H.R. 7024 also includes tax cuts for corporations.)

Along with this groundbreaking progress at the federal level, the Hawaiʻi State Legislature is currently considering HB 1662 / SB 2660, a proposal looking to create a state-level Child Tax Credit for Hawaiʻi—a “Keiki Credit.” This credit would be worth $650 per child under the age of 18, and it would help an estimated 176,000 local children by giving parents cash refunds that they can use for their basic needs, such as housing, food, education, and transportation.