Modernizing our federal tax system holds enormous potential to advance equity, improve health, and reduce poverty in our country. But the existing system hasn’t kept up with how families and workplaces have changed, and the intensifying caregiving challenges.
In April, millions of Americans filed their tax returns. Some are thrilled with their refunds; others had tax bills to pay. But one thing is clear: Our tax code could be doing much more to help families with children, including but not limited to families of color and those with low incomes. If the government extended eligibility and access to tax credits for these families, it would boost their health, wellbeing, and financial security.
The tax system is our country’s single largest source of government support for families with children. In 2024, the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) alone lifted 6.8 million people out of poverty. But our tax code leaves out many families, preventing them from fully benefiting from these credits because of restrictive eligibility requirements or because they struggle to navigate the rules.
The Tax Policy Center—a joint venture of the Urban Institute and Brookings Institution—has created a powerful storytelling feature that explains the challenges families face in filing taxes and claiming tax benefits, and the reforms advocates can champion to change that.
Our tax code is complex and outdated
Families raising children come in all shapes and sizes. Not all families have married parents with one or both holding steady jobs with regular paychecks. Grandparents, siblings, cousins, and others raise children, as do biologically unrelated caregivers such as a parent’s boyfriend or girlfriend. Despite the essential role these “nontraditional” caregivers play, many struggle to claim our tax code’s child-related benefits and navigate our tax system.
Consider Grant and Shay*, a retired couple raising their granddaughter. Grant’s Social Security benefits and Shay’s earnings from her part-time job bring their income to $43,000 per year. That leaves them below the income level at which they would begin to owe taxes. Consequently, the law does not require them to file a tax return. Like many families with low incomes, they may mistakenly believe they’re not supposed to file their taxes each year, so they don’t. But if they did file, they would receive the CTC and EITC, since they are raising their granddaughter and meet the eligibility rules to claim her. Better outreach and easy tax filing services could help families like them access benefits they have earned.
Consider Miranda and Joseph*, unmarried partners who care for both Miranda’s child from a prior relationship and her cousin. Joseph earns $50,000 per year as a basketball coach, and Miranda is a stay-at-home mom. But despite being primary caregivers for both young children, they cannot claim the EITC or the CTC because neither Miranda nor Joseph meet both the relationship tests or earnings rules that would make them eligible. Rewriting these rules to make more “nontraditional” caregivers eligible for tax credits, and to allow families with the lowest incomes to benefit, would lift families like theirs.
Consider also Bilal*, who left his teaching job when he became a sole caregiver for Fatima, an elderly family member who needs full-time assistance. He now works as a driver for food delivery and rideshare companies. When Bilal taught, his employer withheld taxes from every paycheck. But now, as an independent contractor, he is responsible for making quarterly income tax and self-employment tax payments (which fund Social Security and Medicare). Because he did not know, he faces a large, unexpected bill during tax filing season and may be subject to penalties. Gig workers like Bilal wade through misinformation on social media and could benefit from better information about how to meet their tax obligations. They also would benefit from having the businesses they work with withhold some of their taxes regularly to help them avoid financial shock and penalties each April.
Similarly, residency test rules prevent families from accessing tax credits when a child lives with different family members throughout the year, without living with any of them for more than half the year. And mixed-status immigrant families face several barriers to both filing taxes and claiming tax credits.
*Note: The families depicted in the Tax Policy Center feature are composites based on prior research and interviews with experts.
States are innovating
To address these and other problems, some states have become hubs of innovation, working to make their state tax systems more inclusive. They are expanding tax credits and revising rules to better reflect the myriad types of families raising children in our country today.
Bipartisan support is driving many state reforms. Lawmakers in Maine, Maryland, New York, Utah, and Vermont expanded their CTCs in 2025, while lawmakers in Georgia created that state’s CTC. In addition:
- Colorado has created a state-level Family Affordability Tax Credit designed to significantly reduce child poverty in the state.
- Maryland is working to identify barriers that prevent low-income residents from utilizing its state EITC and CTC, and ways to engage communities with the tax system.
- Minnesota is sending portions of the state’s CTC in advance payments to those who opt in, so families need not wait until tax season to collect those funds.
- Thirteen states and the District of Columbia have enacted laws that make the CTC and EITC available to taxpayers without Social Security numbers, most often undocumented immigrants who instead use an individual taxpayer identification number on their tax returns.
- Washington State adopted a Millionaire’s Tax in 2026. It taxes income of more than $1 million a year, with the revenue earmarked for school meals, tax credits for working families, and investments in healthcare, schools, and child care.
A stronger tax system would benefit us all
As states blaze a trail, their experiences offer hope and guidance for advocates working to reform the federal tax code so it better serves all families and does more to lift children out of poverty. At a time when costs for food, gas, healthcare, and other essentials are rising, finding ways to support all families via tax policies ought to be a priority for advocates, philanthropies, and others. Whether you are working to improve healthcare or public schools, reduce food insecurity, expand quality housing, support immigrant communities, make child care more affordable, or improve the lives of families in other ways, tax reforms that prioritize families, especially those with modest incomes, can advance your goals.
Becoming a nation where health care is no longer a privilege for some, but a right for all, depends on a tax system that is fair, where the wealthy pay their fair share and cash assistance reaches everyone who needs it. We can create a tax code that works for today’s children and families. When we do, our communities will be stronger, our democracy healthier, and our country more successful.
