A baby bonus can be a powerful way to support and strengthen American families, but the details of implementation are critical. A baby bonus is a one-time payment, delivered shortly after the birth of a child, which helps families manage the financial shock and added expenses of a baby’s first year. Another approach to this first-year period is to enhance the existing Child Tax Credit (CTC) by adding a young child bonus specifically for newborns. However, a $2,000 newborn credit may not benefit all families—especially those who are excluded based on how the program is structured.
A newborn benefit could be offered to families through one of the following designs:
- A $2,000 increase to the nonrefundable portion of the existing CTC.
- A $2,000 increase to the refundable portion of the existing CTC.
- A standalone, refundable $2,000 baby bonus, that phases in separately from the CTC.
These design choices have major implications for how high an income a working family needs to fully claim the newborn credit. The Niskanen Center proposes a $2,000 baby bonus that phases in separately from the CTC, at a rate of 20 percent per dollar earned. Under this structure, every family earning $10,000 would receive the full value of the baby bonus.
When a newborn supplement is added to the existing CTC, families must earn a higher income to receive the full $2,000 benefit. Unlike a standalone baby bonus, which phases in from the first dollar earned, the refundable portion of the CTC begins phasing in only after a household earns more than $2,500—then it phases in at a rate of 15 cents per additional dollar earned. Families without income tax liability are eligible for a maximum refundable credit of $1,700 per child through the Additional Child Tax Credit (ACTC). For example,s a family with only one child must earn at least $13,833 to claim the full $1,700. However, the remaining $300—available only as a nonrefundable credit—can’t be claimed until the family earns enough to owe federal income tax.
If the newborn CTC supplement is refundable, it would phase in after the ACTC– that is, the refundable portion of the CTC–has fully phased in. The newborn supplement would be assumed to maintain the same phase in rate as the ACTC.
A family with one child–their newborn–would fully phase in the ACTC at $13,833 in earnings. At that point, they would begin phasing in the newborn bonus. Both the standard ACTC and the refundable newborn bonus would phase in fully at $27,166 in earnings, for a full value of $3,700 in refundable tax credits.
If the newborn supplement were added to the nonrefundable portion of the CTC, families would need significantly higher earnings to qualify for the extra credit. That’s because they would need enough income to generate a tax liability not only equal to the existing nonrefundable portion of the CTC, but also to cover the additional $2,000 for the newborn’s first year.
Tables 1-3 illustrate the minimum earnings necessary to claim the full newborn credit based on credit structure –standalone refundable credit, an increase in nonrefundable portion of the CTC, or an increase in the refundable portion of the CTC—and family size—a married couple with one, two, or three children. In all three cases, families can claim the standalone refundable newborn credit once they earn $10,000. Adding it to the existing CTC, on the other hand, pushes up the earnings requirements as family size increases.
Table 1: Comparison of “baby bonus” phase-in options for households with one child
| Family | Standalone “newborn credit” ($2,000 ; phase-in full benefit at $10,000 in earnings) | Baby bonus as $2,000 increase to nonrefundable CTC portion for household | Baby bonus as $2,000 increase to refundable CTC portion for household |
| $15,000 | $2,000 | $0 | $0 |
| $25,000 | $2,000 | $0 | $1,675 |
| $30,000 | $2,000 | $0 | $2,000 |
| $35,000 | $2,000 | $0 | $2,000 |
| $45,000 | $2,000 | $0 | $2,000 |
Once the family with one child has fully phased in the refundable ACTC, the refundable baby bonus begins phasing in at the same rate and is available to the family earning $30,000. The non-refundable baby bonus is out of reach for all the families earning $45,000 or less. At the top of this income range, they are still receiving a mix of the non-refundable CTC and the refundable ACTC and are assumed to not move on to the $2,000 supplement for newborns until the CTC is fully offset by taxes owed.
For lower-income working families who are already raising children when the new baby comes along, the newborn supplement is further out of reach when it is applied as a top-up to the CTC or ACTC. A family with two children earning $45,000 or less wouldn’t receive any of the proposed bonus if it were nonrefundable. If the credit were refundable and phased in once the ACTC was exhausted, the family must still earn at least $38,500 to receive it in its entirety.
Table 2: Comparison of “baby bonus” phase-in options for households with two children
| Family | Standalone “newborn credit” ($2,000 ; phase-in full benefit at $10,000 in earnings) | Baby bonus as $2,000 increase to nonrefundable CTC portion for household | Baby bonus as $2,000 increase to refundable CTC portion for household |
| $15,000 | $2,000 | $0 | $0 |
| $25,000 | $2,000 | $0 | $0 |
| $30,000 | $2,000 | $0 | $725 |
| $35,000 | $2,000 | $0 | $1,475 |
| $45,000 | $2,000 | $0 | $2,000 |
The challenge becomes even more significant for larger families. For a family where the new baby was the youngest of three, the refundable baby bonus would not phase in completely until $49,833 in family earnings. To fully claim a non-refundable baby bonus, a family of three would need a little more than $100,000 in income, to have enough income tax to fully qualify for non-refundable relief.
Table 3: Comparison of “baby bonus” phase-in options for households with three children
| Family | Standalone baby bonus ($,2000 ; phase-in full benefit at $10,000 in earnings) | Baby bonus as $2,000 increase to nonrefundable CTC benefit for newborn | Baby bonus as $2,000 increase to refundable CTC benefit for newborn |
| $15,000 | $2,000 | $0 | $0 |
| $25,000 | $2,000 | $0 | $0 |
| $30,000 | $2,000 | $0 | $0 |
| $35,000 | $2,000 | $0 | $0 |
| $45,000 | $2,000 | $0 | $1,275 |
The purpose of a baby bonus is to support American families at the moment their child is born—a time when parents are often early in their careers and earning less than they will later in life.Imposing a higher earnings threshold than what already exists under the Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC) undermines that goal. Families need support most when their incomes are lowest.
A baby bonus is most effective when it doesn’t vary based on family size. A complex, serial phase-in tied to the number of children makes it difficult for parents to know whether they’ll receive the benefit at all. It also prevents timely payments after a baby’s birth, since families could be subject to unexpected clawbacks at tax time.
Designing the baby bonus with its own independent earnings requirement and phase in makes it simpler and more reliable. Parents can count on receiving the same benefit regardless of whether it’s their first, second, or third child.The baby bonus should be straightforward, predictable—it should never leave the youngest child stuck in line behind his or her siblings.