Federal benefits cuts are looming – here’s how Colorado is trying to protect families with children

Childhood poverty in the U.S. fell to its lowest level in history^[1] in 2021. The fall was largely due to the expanded child tax credit^[2] and other COVID-19 pandemic supports that put cash directly in the hands of parents and lifted millions of children out of poverty^[3].

Once these safety net changes expired at the end of 2021, childhood poverty rebounded, surging from 5% in 2021 to 13% in 2024^[4].

While federal anti-poverty initiatives like the child tax credit expansion have stalled, states like Colorado are increasingly leveraging their tax codes to combat poverty^[5]. The Colorado Family Affordability Tax Credit^[6] took effect in tax year 2024. It is one of the most substantial and accessible state-level programs designed to support families, potentially offering thousands of dollars to low-income Colorado parents.

As economic^[7] policy^[8] researchers^[9], we are conducting a three-year evaluation of the Colorado Family Affordability Tax Credit. We estimate that the credit reduces child poverty in Colorado by about 20%^[10], and that reduction increases to 37% when combined with other state tax credits for low-income families, moving roughly 52,000 children above the poverty line.

Colorado’s approach is projected to have one of the strongest anti-poverty effects^[11] among state refundable child tax credits. If Colorado’s design were implemented in every U.S. state, child poverty nationwide could be reduced by more than one-third.

However, due to the complicated funding structure of the Colorado tax credit, the program is at risk. Changes in federal legislation created tax breaks for Colorado businesses, reducing state revenue projections^[12]. Since the credit is only available when Colorado state revenue growth is above 3%, these tax breaks caused the Family Affordability Tax Credit to be suspended for 2026^[13], meaning the credit may not be part of families’ 2027 tax refunds.

Changes put Colorado families at risk

State anti-poverty programs are more vital now as planned cuts to federal safety net programs may substantially reduce the benefits available for low-income families. The 2025 federal tax breaks and spending cuts package expanded work requirements for the Supplement Nutrition Assistance Program, or SNAP,^[14] and Medicaid^[15] – programs that millions of families rely on to meet their food and healthcare needs.

Following this change, most working-age adults enrolled in these programs must work 80 hours per month. Previously, Medicaid had no work requirements and SNAP had work requirement exemptions for older working-age adults. The law requires states to implement these changes by Jan. 1, 2027, though some states, such as Georgia and Ohio^[16], are starting earlier. Proponents argue that work requirements encourage labor force participation and reduce government spending^[17].

However, research finds that stricter work requirements reduce program participation^[18] more than they increase work^[19]. Changing enrollment systems requires retraining staff and providing outreach and education to enrollees, which is costly to implement^[20].

As a result, many Americans may lose benefits not because of an unwillingness to work, but because of complex rules and red tape^[21], which are difficult to manage while juggling unsteady jobs^[22], caregiving obligations or health issues.

Federal changes to the safety net will hit Colorado especially hard. Early estimates from simulation models applying the new requirements show that roughly 298,000 Colorado families^[23] could lose their SNAP benefits, and 154,000 could lose Medicaid coverage^[24]. These cuts will disproportionately affect families with children, low-wage workers and families already struggling to make ends meet.

Amid soaring costs of living in the state^[25], tighter eligibility doesn’t eliminate need. Instead, it forces families into difficult trade-offs. Those could include skipping meals, delaying medical care or falling behind on rent.

Using the tax system to support families

Colorado’s Family Affordability Tax Credit was implemented in 2024^[26]. The credit provides US$3,200 per child under age 6 and $2,400 per child ages 6 to 16, making it one of the most substantial state child tax credits.

Married couples filing jointly with eligible children who earn up to about $95,000 per year qualify for a portion of the credit. It is fully refundable^[27], meaning families can receive the credit as a tax refund even if they do not owe anything in state taxes. Delivered through the tax system, access is simple and largely automatic for most households.

Parents who received the credit consistently told us in interviews that it made it easier for them to afford paying for their basic needs, such as food, housing, utilities and transportation. The reduced financial strain also improved their emotional well-being and family dynamics. As one caregiver noted, lower stress meant they weren’t in “hustle mode” just to keep the lights on.

The credit is “more than a dollar amount,” another said. It provides “peace of mind.”

Parents also highlighted the positive effects that receiving this tax credit had on children. The money allowed some to take their kids to activities and on outings, and allowed many parents to feel more present with their children.

“If I’m relaxed and my own cup is full, I can fill theirs,” said one parent. “It’s a ripple effect.”

More than 60% of the families we surveyed said they preferred the tax credit to other kinds of government benefits, citing its flexibility and ease of use. Unlike programs that require frequent reporting or compliance checks, such as Temporary Assistance for Needy Families^[28], Colorado’s Family Affordability Tax Credit was often described as straightforward.

“I never feel it’s that difficult to get,” said one participant we interviewed.

Why tax credits work — and where this approach can fall short

Colorado’s tax-based approach to fighting poverty, which includes the Family Affordability Tax Credit, the Colorado Earned Income Tax Credit^[29] and the Colorado Child Tax Credit^[30], offers flexible support via a familiar system. However, this approach has limitations.

Millions^[31], including about 1 in 4 workers eligible for the federal Earned Income Tax Credit^[32] in Colorado, don’t file taxes. That means they may miss out on the tax credits.

Another issue is that lump-sum payments can be difficult to budget for people who rely on government benefits to make ends meet. Our research suggests that one-third^[33] of Colorado respondents preferred monthly payments. We’ve also found that two-thirds^[34] of federal child tax credit recipients in 2021 preferred monthly payments for budgeting reasons.

Why state investment in children matters

Although the full impacts of the Family Affordability Tax Credit on Colorado’s children are not yet known, a robust body of research^[35] points to the powerful role state policies can play in shaping young children’s development. Increased family income benefits children^[36] by enabling greater family resources, such as educational spending, and reducing parental stress.

Importantly, increasing spending that supports families with children can yield long-term benefits for society by improving children’s health, education, employment and economic stability later in life. Research shows a 10-to-1^[37] return on investment from providing refundable tax credits to these families.

As federal support wanes, state policies, like Colorado’s, could be crucial for providing the stability children need to grow, learn and thrive. Unless Colorado makes the Family Affordability Tax Credit a permanent and reliable fixture of the state budget – as a recent proposal aims to do^[38] – the progress the state has made in reducing child poverty may only be temporary.

Read more of our stories about Colorado^[39].

References

1. ^{^} fell to its lowest level in history (theconversation.com)
2. ^{^} due to the expanded child tax credit (theconversation.com)
3. ^{^} lifted millions of children out of poverty (www.nationalacademies.org)
4. ^{^} 5% in 2021 to 13% in 2024 (assets.aecf.org)
5. ^{^} tax codes to combat poverty (www.ncsl.org)
6. ^{^} Family Affordability Tax Credit (tax.colorado.gov)
7. ^{^} economic (brownschool.washu.edu)
8. ^{^} policy (socialwork.appstate.edu)
9. ^{^} researchers (www.chhs.colostate.edu)
10. ^{^} reduces child poverty in Colorado by about 20% (fepl.appstate.edu)
11. ^{^} strongest anti-poverty effects (povertycenter.columbia.edu)
12. ^{^} reducing state revenue projections (content.leg.colorado.gov)
13. ^{^} these tax breaks caused the Family Affordability Tax Credit to be suspended for 2026 (coloradosun.com)
14. ^{^} Supplement Nutrition Assistance Program, or SNAP, (www.brookings.edu)
15. ^{^} Medicaid (www.urban.org)
16. ^{^} some states, such as Georgia and Ohio (www.kff.org)
17. ^{^} work requirements encourage labor force participation and reduce government spending (www.cbo.gov)
18. ^{^} reduce program participation (www.jstor.org)
19. ^{^} increase work (theconversation.com)
20. ^{^} costly to implement (www.kff.org)
21. ^{^} complex rules and red tape (doi.org)
22. ^{^} unsteady jobs (www.oecd.org)
23. ^{^} 298,000 Colorado families (www.urban.org)
24. ^{^} 154,000 could lose Medicaid coverage (www.kff.org)
25. ^{^} soaring costs of living in the state (cochamber.com)
26. ^{^} implemented in 2024 (leg.colorado.gov)
27. ^{^} fully refundable (www.irs.gov)
28. ^{^} Temporary Assistance for Needy Families (acf.gov)
29. ^{^} Colorado Earned Income Tax Credit (tax.colorado.gov)
30. ^{^} Colorado Child Tax Credit (tax.colorado.gov)
31. ^{^} Millions (www.ntanet.org)
32. ^{^} 1 in 4 workers eligible for the federal Earned Income Tax Credit (www.irs.gov)
33. ^{^} one-third (fepl.appstate.edu)
34. ^{^} two-thirds (www.brookings.edu)
35. ^{^} body of research (doi.org)
36. ^{^} benefits children (www.urban.org)
37. ^{^} 10-to-1 (www.cambridge.org)
38. ^{^} as a recent proposal aims to do (www.cohousedems.com)
39. ^{^} Colorado (theconversation.com)