The child tax credit (CTC), once uncommon at the state level, is now present in nearly half of all U.S. states. Two dominant models have emerged– fully refundable and nonrefundable–each representing an inflexible, all-or-nothing approach to supporting families in poverty. However, a third model is beginning to take shape in several state proposals this year. This emerging approach aims to provide meaningful support to the working poor, offering a more nuanced alternative.
Nonrefundable credits reduce a taxpayer’s liability on a dollar-for-dollar basis but cannot exceed the amount of taxes owed. They are most prevalent in the West (Utah, Idaho), the Midwest (Nebraska, Iowa), and the South (Arkansas, Oklahoma). In most cases, generous standard deductions wipe out most or all income tax liability for low-income families, leaving them unable to claim the full value of nonrefundable CTCs.
Fully refundable credits, by contrast, allow families to receive the full value of the credit regardless of their earnings or income tax liability. They are most common on the west coast (California, Oregon) and the east coast (Maine, Massachusetts). In most cases, families with little or even no earnings can claim the full value of the credit.
Under proposed new child tax credit legislation in Georgia, Michigan, and Ohio, low-income families who work full-time but still fall below the federal poverty line would become eligible to receive most or all of the credit for their household. While each state takes a different approach, all three proposals aim to achieve a similar goal: extending meaningful support to working families struggling to make ends meet. Using a hypothetical example of a single parent with one young child (see figure 1), we can illustrate how each state’s model operates and where their approaches diverge.
Figure 1: Child tax credit by income for single parent with one young child
Georgia: A nonrefundable credit that reaches the working poor
Lawmakers in Georgia are considering a nonrefundable CTC of up to $250 for each child under age seven. Because the credit is nonrefundable, its impact depends heavily on how it interacts with other basic family tax benefits. Georgia currently offers a $24,000 standard deduction for married couples filing jointly and a $12,000 standard deduction for all other filing statuses, including heads of household. Families can also claim an additional $4,000 exemption for each dependent.
For a single parent with one young child, this structure means the proposed CTC would begin to phase in once the household earns $16,000 in annual income. They would receive the full credit once they earn at least $19,600 – just below the federal poverty line for a family of two (see figure 1).
The more generous standard deduction for married couples significantly reduces their income tax liability, resulting in their exclusion from the proposed CTC, even if they are below the higher $26,650 poverty threshold for a family of three. A nonrefundable credit reaches the single parent working poor in Georgia because, unlike other states, Georgia does not provide a larger standard deduction for heads of household relative to single filers. Reaching low-income married parents would require making it refundable.
Ohio: A refundable credit based on the state minimum wage
As part of the governor’s budget package, Ohio lawmakers are considering a refundable CTC worth up to $1,000 for each child under age seven. It phases in at a rate of 5% for each dollar earned after a household’s first $2,500 in earnings until reaching the maximum credit. Once households reach $50,000 (for single parents) or $75,000 (for married parents), the credit begins to phase out at a 5% rate. A single parent with one young child would receive the credit once their earnings reach at least $22,500–just above the federal poverty line for a family of two (see figure 1).
Unlike many states, Ohio does not offer a standard deduction. Instead, it provides a relatively modest personal exemption—capped at $2,400—and a comparatively large 0% tax bracket that exempts the first $26,050 in earnings from income tax. This structure effectively prevents families earning under $30,000 from accessing a nonrefundable CTC. For policymakers who view an earnings requirement as a way to encourage work, this setup undermines that goal: a parent working full-time at Ohio’s minimum wage may lose access to other state benefits without gaining any support from the tax system in return.
A refundable credit, by contrast, could directly incentivize full-time work. If structured so that the credit phases in with the earnings and reaches its full value around $21,400—the annual income of a full-time minimum-wage worker in Ohio—it would align state tax policy with the realities of low-wage work. This approach not only rewards employment, but also helps pull families into the labor force and supports their path toward self-sufficiency and upward mobility.
Michigan: A refundable credit tied to the federal CTC
Lawmakers in Michigan are considering a refundable credit equal to 50% of the federal child tax credit. This would effectively introduce a credit worth up to $1,000 for each child under 17 years old. It would phase in at a 7.5% rate for each dollar earned after a household’s first $2,500 in earning, plateau for some households then phase in at a 5% rate before reaching the maximum credit. Once households reach $200,000 (for single parents) or $400,000 (for married parents), the credit begins to phase out at a 2.5% rate. A single parent with one young child would receive the credit once they have earned at least $24,900–roughly what they would earn working full-time at the state minimum wage (see figure 1).
States have been setting refundable state earned income tax credits (EITCs) as a percentage of the federal EITC for decades. Michigan would become the second state to introduce a refundable state CTC set as a percentage of the federal CTC. This approach has many of the same benefits as Ohio’s model. In addition, it provides the added benefit of simplicity—making it easier for families to calculate their combined federal and state CTC benefits.
Rethinking tax credits for working families?
State policymakers frequently look to their peers for innovative policy solutions. Georgia, Ohio, and Michigan offer concrete examples of the underlying principles outlined in our blueprint –—showing how fiscally responsible reforms can expand the scope, generosity, and simplicity of family tax benefits.This new wave of state child tax credit proposals demonstrates that there are multiple paths forward. States can craft CTCs that meaningfully support low-income working families without relying solely on traditional nonrefundable models, and without necessarily adopting fully refundable credits.