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Child Tax Credit: What Will The Revised Credit Mean For Families?

The revised Child Tax Credit will give parents up to $300 per month per kid, which will make life easier for millions of families.

By CBS Los Angeles , in Los Angeles , at June 28, 2021

original article published at

(CBS Miami) — The revised Child Tax Credit is about to take effect. Starting July 15, most parents will receive a monthly payment of up to $300 per child, courtesy of the American Rescue Plan. That extra money can really add up, especially for families on the low end of the income spectrum. It may even be the difference between eating and not eating or paying and not paying rent.

The enhanced Child Tax Credit will be available to about 39 million families, accounting for 65 million children, according to the Biden administration. That covers around 88 percent of the nation’s children. Approximately 13 percent of households with children faced food insecurity due to lack of money, according to Census data from late May and early June of 2021. About 21 percent of renting households with children were behind on their rent, according to the same data. Early estimates from the Center on Budget and Policy Priorities suggest that expanding the Child Tax Credit will push 4.1 million children beyond the poverty line.

How Much Will You Get?

For parents of children up to age five, the IRS will pay $3,600 per child, half as six monthly payments and half as a 2021 tax credit. That comes out to $300 per month and $1,800 at tax time. The amount changes to $3,000 total for each child ages six through 17, or $250 per month and $1,500 at tax time. The IRS will make a one-time payment of $500 for dependents age 18 or fulltime college students up through age 24.

Payments will be based on the modified adjusted gross income (AGI) reflected on a parent or parents’ 2020 tax filing. (AGI is the sum of one’s wages, interest, dividends, alimony, retirement distributions and other sources of income minus certain deductions, such as student loan interest, alimony payments and retirement contributions.) The amount phases out at a rate of $50 for every $1,000 of annual income beyond $75,000 for an individual and beyond $150,000 for a married couple. The benefit will be fully refundable, meaning it will not depend on the recipient’s current tax burden. Qualifying families will receive the full amount, regardless of what they owe in taxes. There is no limit to the number of dependents that can be claimed.

“It’s a lot more generous,” according to Stephen Nuñez, the Lead Researcher on Guaranteed Income at the Jain Family Institute, an applied research organization in the social sciences. (Nuñez studies cash welfare policy, that includes field work to answer policy-relevant questions about the social safety net.) “It’s fully refundable, and it no longer has a work requirement. So that means that it is going to be particularly important for the poorest households, those who earn nothing, or who earn less than $2,500 a year in taxable income. There have been some simulations, some analyses of this particular plan that suggest that these changes are enough on their own to cut the child poverty rate in the United States by somewhere around 40 percent.”

“So it’s actually a huge impact on child poverty in the United States, Nuñez continues. “And this is consistent with what we’ve seen happen in other countries that have also introduced something like a child allowance. So, this kind of policy, although it’s implemented and administered in different ways in different countries, is fairly common. It exists in Canada, it exists in the UK, in Germany, and other places in the world. And, in those places, it has had very similar results, cutting child poverty by a third or by 50 percent, relative to the baseline.”

What Will It Do For Families?

While food and shelter are obvious ways the extra Child Tax Credit money can be put to use, there are plenty of ways it can be helpful in the raising and caring for children. An extra $250 or $300 per month could allow a parent to have transportation to and from work or childcare while they’re at work. In other words, it could make having a job possible.

Many families are one unexpected large expense away from financial ruin. And the term “large expense” is relative based on income. So an extra few hundred dollars per month could allow a parent to build up a sort of rainy-day fund, for when life deals an unexpected blow.

The loss of a job can be devastating to a household. The loss of unemployment benefits provided by the government in the absence of a job can be equally disruptive. Almost half of American households receiving unemployment include children. In what appears to be a coincidence of timing, the updated Child Tax Credit will start soon after many states stop accepting the federal unemployment benefit bonus for their citizens. A total of 26 states have or will cut off the $300 weekly benefit ahead of the official Labor Day end date. The additional money from the Child Tax Credit will offset some of the money that the unemployed will lose.

Results from a recent basic-income experiment provide even more clues as to the benefits of these Child Tax Credit payments. The city of Stockton, California sent $500 per month to a group of families making less than the city’s median income of $46,000 per year. The families mostly spent the money on essential items, including food, bills, and household items. The extra money also reduced income volatility and likely the stress of not knowing when the next paycheck would arrive or how much it would be. It also had a positive effect on health, happiness and anxiety without reducing one’s will to work.

“It’s good that we’re reducing poverty,” says Yeva Nersisyan, Associate Professor of Economics at Franklin & Marshall College. “And the fact that we could reduce it with a tax credit increase that’s not dramatic — we might be almost doubling it, but in dollar terms is not that much — so the fact that we could have done that and we hadn’t done it sooner, I think it’s kind of outrageous. But it also tells you that the way we think about poverty — the poverty line, where were we put it (which is at an annual income of $26,500 for a family of four) — it’s not really realistic.”

“So that’s why a little bit more money can push you over the poverty line,” Nersisyan continues. “But that doesn’t necessarily mean you’re not poor in a more realistic sense.”