Support Virginia Families through a Commonwealth Kids Credit

Originally published Jan 17, 2023; Updated Feb 2, 2024

True economic prosperity means that families are doing well and have the resources and opportunity to thrive. By coming together, people in Virginia have won an improved Earned Income Tax Credit (EITC), increased minimum wage, and expanded workers rights in recent years — policy wins that lift families up. Yet more must be done to reverse decades of low-road policies that limited opportunities and kept incomes down. In addition, household and family buying power has eroded recently because inflation has outpaced any income gains, while corporate profits continue to rise.¹² 

One lesson from the response to the COVID-19 pandemic and economic crisis is that direct support to families is one of the best ways to help families and boost the economy. Improvements in family economic security measures, such as food security and financial stability, coincided with distribution of federal stimulus checks and refundable tax credits. State policymakers should draw from this lesson and prioritize policy changes that will sustain a long-term and equitable recovery that reaches everyone in Virginia, particularly people who have been most impacted by the COVID-19 pandemic and are the most affected by rising inflation. As we consider solutions to make the cost of living in Virginia more affordable, direct support for families through a new state child tax credit should be considered.

At the federal level, tax credits like the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) are proven policy tools for supporting families with low incomes. Many states already supplement the federal versions of these credits with state credits, including Virginia, which provides a state EITC that matches a portion of a family’s federal EITC. In addition to further strengthening the state’s EITC, Virginia should also consider enacting a Commonwealth Kids Credit to help all families thrive.

Congress improved the federal CTC for 2021 under the American Rescue Plan Act (ARPA). ARPA increased the size of the federal credit for certain income levels, removed the minimum income requirement, and allowed families with low incomes to receive the full amount of the credit by making it refundable. Because ARPA removed the minimum income requirement, more families, especially families with low incomes, could access the full CTC. The improved credit helped an estimated 1.6 million children in Virginia — 85% of all children in the state.³ The average benefit for Virginia families who received the credit was estimated to be an additional $2,520 per family (on top of the amount they would receive under the existing CTC).

ARPA improvements made the federal CTC more accessible to children in low-income households

	Federal CTC	Improved CTC under ARPA
Credit Amount	$2,000/child <17	$3,600/child, <6  $3,000/child, 6-17
Refundability	Refundable up to $1,400	Full credit is refundable
Income Limits	Phases in starting at $2,500 of income.  Phases out at $400k of income.	No income phase in. Phased out for incomes higher than $75,000 for single filers and $150,000 for joint filers

When surveyed, families who received the expanded federal CTC reported spending it on housing and utilities, clothing and essential items, food, savings, and paying off debt.

The temporary expansion of the federal CTC under ARPA dramatically reduced poverty. Recent data shows that the policy lifted 5.3 million people out of poverty nationally, including 2.9 million children – contributing to a stunning 46% drop in child poverty. In 2021, the CTC alone was the third most effective poverty reduction measure taken by the federal government, only behind Social Security and Pandemic Relief Checks.⁴ However, with failed attempts to continue the brief expansion of the federal CTC, these significant gains were only temporary. Now, over 360,000 children in Virginia are unable to access the full federal child tax credit.⁵ Over half of these children are Black and Latino. With knowledge of both the success of ARPA in reaching families with low incomes and lifting millions of children out of poverty, as well as the economic insecurity that has risen after its expiration, states can act to fill in where the federal credit falls short and create their own Child Tax Credits.

Similar to how Virginia builds upon the federal EITC by offering a state version, Virginia could create a state supplement to the federal CTC. Currently, 14 states have versions of this policy already on the books.⁶ In 2023 alone, Oregon, Minnesota, and Utah enacted new state CTCs, while Colorado, Maine, Maryland, New Jersey, New Mexico, New York, and Vermont expanded their existing programs. While state CTCs are varied in scale and scope, many focus their efforts on children in low-income families, providing targeted relief to families no longer served by the federal CTC.

An effective state-level credit would be far-reaching, yet guarantee that families who need it the most were able to access the full credit. Virginia could create a refundable Commonwealth Kids Credit of $500 per child under 18 in households earning less than $100,000. Overall, more than 1 million children in more than 640,000 families would benefit from a Commonwealth Kids Credit in Virginia. Under this proposal, 56% of the overall benefits would be received by families with incomes under $57,000.⁷ In addition to supporting families broadly, this policy would likely provide a substantial income boost to families of color, especially Black and Latino families, and help to address low pay that results from discrimination in and barriers to employment, education, and other areas. A Commonwealth Kids Credit would provide an income boost today and improve outcomes tomorrow as refundable tax credits are linked with a range of long-term benefits, including better health outcomes, and make it more likely that children will reach their full potential.

Making sure our children have what they need to be healthy and cared for is increasingly expensive and families need support, especially as inflation compounds child-raising costs further. With the costs of essentials rising, families with low incomes, who spend higher portions of their incomes on essential goods and services, are being hit the hardest.⁸ When surveyed, families who received the expanded federal CTC reported spending it on housing and utilities, clothing and essential items, food, savings, and paying off debt.⁹ A $500 Commonwealth Kids Credit is enough to buy seven months of diapers for a newborn, about half a month’s worth of food for a family of four, or over a year of a family’s water bill. In a nutshell, it means more resources for Virginia’s families to create safer, healthier environments for their children.

Not only would a state Commonwealth Kids Credit help Virginia families, it would also reorient Virginia’s tax code toward justice. Families with low incomes pay a greater share of their incomes in state and local taxes compared to higher-income families, but a state Child Tax Credit could help to flip Virginia’s upside-down tax system and move tax policy in a more fair direction. 

Virginia has the resources to provide direct assistance to families through a state-level Commonwealth Kids Credit. In doing so, state lawmakers would be making a critical choice to help families live with greater security and help our communities to thrive.