Child Tax Credit: How Advance Monthly Payments Can Help Families

(CBS Philadelphia) -- The updated Child Tax Credit is due to start in a few days. Beginning July 15, the Internal Revenue Service (IRS) will send most parents up to $300 per month per child, as outlined in the American Rescue Plan. That additional money, like recurring stimulus checks, will help struggling families make ends meet. When the check comes, 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 youth. Approximately 13 percent of households with children faced food insecurity due to lack of money, according to Census data from the middle of June. About 20 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?

The IRS will pay $3,600 per child, half as six monthly payments and half as a 2021 tax credit, to parents of children up to age five. That comes out to $300 per month through the end of 2021 and $1,800 at tax time next year. 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 determined by the modified adjusted gross income (AGI) reflected on 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 is refundable, meaning it does 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.

"They have essentially opened it up to people who have zero taxable income, even non-filers," 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.) "And they have increased the value to $3,000 per child, if they're over the age of six, and to $3,600 for children zero to five. So it represents a fairly significant increase in the generosity of the benefit, and one that researchers believe is likely to have a huge impact on child poverty. Some estimates suggest that this benefit alone can cut the child poverty rate by about 40%. And, of course, for middle class households, those who don't fall under the federal poverty line, but who are still straining to make ends meet, this will represent some additional cash."

"It represents the United States creating something like a child allowance, something that many other countries do," Nuñez continues. "Canada, the U.K., Spain, Germany, they've had an enormous success in cutting down child poverty, and they've also reaped long term benefits for that. Because the research shows that as you cut down on child poverty, that those children grow up to be healthier, more productive, better-educated adults. And, of course, that's great for the economy, and it's great for society."

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 other ways it can be helpful in 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 surprise expense away from financial ruin. And the expense doesn't have to be large for a family on a tight budget. 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 22 states have cut off the $300 weekly benefit ahead of the official Labor Day end date. Four more will end it in the coming weeks. 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."

First published Wednesday, June 23, 2021 at 5:59 p.m. ET.

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