Our state and communities are stronger when we support parents in the workplace and ensure families can achieve financial security. Last week, a report was released detailing the rising cost of child care for families across the United States. In it, the authors revealed that for most working families with two children in the U.S., paying for child care is now a more expensive item in the monthly family budget than rent. For those earning minimum wage, child care costs can be even more prohibitive: in Nebraska, a parent earning minimum wage would have to spend about 48% of his or her earnings to pay for child care for a four-year-old. Especially for those on the margin of financial security, having a new child can be a factor that leads to a family experiencing poverty. This is why programs to help working families offset financial costs like child care are so important. Federal tax credits, such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) are key tools that help to raise families out of poverty and support the health and achievement of their children.
The EITC and CTC work in similar ways. The EITC is meant to encourage work and improve the standard of living for low-moderate income people by deducting an amount from filers’ income taxes, based on what they earn. Most people who receive it are working parents, and the average credit for a family with children is about $3,074. On the other hand, the CTC is specifically designed to reduce the financial burden of having children, and families can receive up to $1,000 per child off their income taxes. When raising children, every bit helps.
Tax credits that help families to reduce expenses can have significant benefits for children, too. Research indicates that the Earned Income Tax Credit and Child Tax Credits helped to raise 9.4 million people out of poverty in the U.S. in 2013, including 5 million children. An extra $1,000 of income from tax credits have also shown to positively affect kids’ health, and correlate with higher academic achievement in kids, such as turning in higher test scores in school, increased odds of going to college by the age of 20 and likelihood of earning higher wages as adults.
Federal tax credits like the EITC and CTC are great tools that help families in Nebraska and across the nation offset expenses like childcare. However, we can do a better job of boosting its state credits that alleviate child care costs. Among other measures, Nebraska offers a state Child and Dependent Care Tax Credit, whose income eligibility cap is $29,000 a year. As we testified this spring, the median household income in Nebraska in 2013 was about $52,000, meaning that this credit doesn’t reach a large segment of Nebraskans. By raising the income eligibility limit for the Child and Dependent Care Tax Credit to today’s standards and finding other ways to help families pay for expenses like child care, we can create more opportunities for Nebraska’s kids and help parents thrive in the workplace.