In the United States today, some of the largest social welfare programs focused on children – including the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) – require that parents earn income from work. While intended to encourage recipients to work, tax credit work requirements may also harmthe lowest-income families. In this paper, the authors study whether eliminating child tax credit work requirements affects parents’ decision to work.
The authors study this question in the context of California’s Young Child Tax Credit (YCTC), a refundable state tax credit for low-income parents with children younger than six. When the YCTC was enacted in 2019 it was available to any taxpayer with income over $1. Then, beginning in 2022, California eliminated the work requirement altogether. Using federal administrative tax data, the authors compare the labor force participation of mothers with children who just barely qualify for the YCTC to those with children just above the age cutoff, before and after the work requirement was eliminated. They find the following:
- Eliminating the YCTC work requirement did not cause a significant number of California mothers to exit the labor force. The authors estimate that working mothers’ labor force participation fell by no more than 0.4 percentage points with the elimination of the work requirement.
The results of the study suggest that eliminating the work requirement from the federal CTC would cause fewer exits from the labor force than prior studies suggest. The results also provide new evidence for states considering adopting or reforming their own child tax benefits, as a central issue in designing such policies is whether to condition benefits on work.