BEYOND THE NUMBERS
Unlike in previous months, millions of families won’t receive a Child Tax Credit payment on the 15th of January due to Congress’s failure so far to extend last year’s temporary expansion of the tax credit. The monthly payments have enabled parents to cover basic costs ranging from food to electric bills, reducing families’ stress and leaving fewer children hungry when they go to bed at night. The expansion has been a remarkable success and, if continued, is projected to reduce annual child poverty by more than 40 percent as compared to child poverty levels in the absence of the expansion. But unless Congress restores the expansion, the payments will be taken away this year along with the rest of the expansion, putting 9.9 million children at risk of falling back into or deeper into poverty. (Table 1 below gives state-specific estimates.)
The American Rescue Plan Act boosted Child Tax Credit benefits for more than 65 million children by raising the maximum credit (to $3,600 for children under age 6 and $3,000 for older children), including 17-year-olds for the first time, and — most importantly — making the credit “fully refundable.” This last change meant that children in families with the lowest incomes, who stand to benefit the most, received the same amount as children in families with higher incomes. Previously, 27 million children, including roughly half of Black and Latino children and half of children living in rural areas, received less than the full credit or no credit at all because their families’ incomes were too low.
The Rescue Plan also authorized the Treasury Department to issue advance payments of half of the credit to families on a monthly basis from July to December 2021, rather than solely as a lump sum at tax time. Census Bureau data show how these monthly payments have helped families with low incomes, in particular, meet their basic needs. The vast majority of families with incomes under $35,000 spent some or all of the payments on necessities — housing, food, clothing, and utilities — and education. (See graphic. Table 2 has state-specific estimates.) So did many households with incomes above $35,000, though their share was smaller since they face fewer difficulties affording the basics.
News reports from across the country have captured parents’ stories about how much the payments mean to their families and their deep anxiety over the monthly payments being taken away. For example:
- “For us people that live in poverty, life is so expensive…. Rent is expensive, getting to work is expensive. Babysitters are expensive. It’s all so expensive when you are not making enough money.” –Lydia Coe, mother of two
- “Your children watch you, and if you worry, they catch on to that…. With that extra cushion, we didn’t have to worry all the time.” –Anna Lara, mother of two
- “Having that money every month was a big help because we allocated that money directly to her”–Matthew Taylor, father of two; he and his wife are using the payments for after-school classes for their daughter, who has autism
- “I try to keep a smile on for my children and just to let them know everything is OK…. But I’ve been having panic attacks thinking about next month.” –Veronica Moreno, mother of three
- “It helped with car repairs, groceries and when the kids needed clothing. Kids grow faster than you think. You go spending money on clothes one week, and then the next week you’ve got to spend more money on new clothes because they’ve already outgrown stuff.” – Doyle Franklin, father of three and a disabled veteran
To see what the loss of the Child Tax Credit expansion means to individual families, consider these examples:
- A single mother with a toddler and a daughter in second grade, who works as a home health aide, earns $12,500 working part-time around her kids’ schedule. Prior to the Rescue Plan, this family received a Child Tax Credit of $750 per child per year, but last year they got $550 per month. Together with the portion of the credit they’ll claim at tax time, they will receive $3,600 for their toddler and $3,000 for their second grader for tax year 2021. Without congressional action, this family won’t receive a $550 payment in January and their income will take a significant hit — a loss of $5,100 per year — going forward.
- One spouse in a married couple earns $20,000 as a short-order cook and the other cares for their 3-year-old son and 7-year-old daughter. Under the credit expansion, they too received $550 per month in 2021. But with the expansion expiring, they’ll lose roughly $3,975 per year.
- A single mother with an 8-year-old son, who is out of work due to a health condition, was eligible for the full Child Tax Credit for 2021 of $3,000 to help with his expenses. Without congressional action, this family would receive no Child Tax Credit at all in 2022 — losing their monthly payment of $250 and adding to their financial insecurity. Under the Build Back Better legislation before the Senate, this family would be permanently eligible for the maximum credit amount — the same amount that families with higher incomes receive — even if the maximum credit drops back to $2,000 per child after 2022.
Middle-income families will also see a large cut in their Child Tax Credit, though they will lose less than many low-income families. For instance, a married couple with 8-year-old twin daughters, where one spouse makes $50,000 as a property manager and the other makes $25,000 as a part-time home health aide, was eligible for an expanded Child Tax Credit of $6,000 for 2021. With the expansion expiring, they’ll receive a total credit of $4,000 — a loss of $2,000 per year.
The timing of the loss of monthly Child Tax Credit payments is particularly harsh. Many parents are missing work due to the steep rise in COVID-19 cases — they or a family member are ill or required to quarantine, for example, or their children’s school or child care provider had to close partially or entirely. When people with lower-paid jobs miss work, they often have no paid leave and their family budget can quickly become even tighter.
Rather than turn last year’s success into failure, Congress should make it a historic, lasting one. The Build Back Better bill makes the most important Child Tax Credit expansion — full refundability — permanent and extends the full expansion for one year. The House passed it; the Senate should now do its part. Families are counting on it.
Estimated Number of Children Who Would Lose Out If Child Tax Credit Expansion Not Extended, by State
Relative to the expanded Child Tax Credit
|State||Children under 18 who would lose out if expansion not extended||Share of children under 18 who would lose out if expansion not extended||Children under 18 at risk of slipping back below the poverty line or deeper into poverty if expansion not extended|
|District of Columbia||93,000||75%||25,000|
Notes: Estimates reflect a pre-pandemic economy, using tax year 2021 tax rules and incomes adjusted for inflation to 2021 dollars. The Total U.S. row comprises the 50 states and the District of Columbia; it does not include U.S. Territories.
Source: CBPP analysis of the March 2019 Current Population Survey (for national total) allocated by state based on CBPP analysis of American Community Survey (ACS) data for 2016-2018. Poverty calculations also use U.S. Census Bureau Supplemental Poverty Measure research files for the ACS.
|Most Low-Income Households Using Monthly Child Tax Credit Payment for Basic Needs, Education|
|Share of households with incomes below $35,000 who used payment for:|
|State||Basic Needs (Food, Clothing, Rent, Mortgage, Utilities)||Basic Needs and/or Education Costs|
|District of Columbia||96%||97%|
Note: Education costs include school books and supplies, school tuition, tutoring services, after-school programs, and transportation for school. Household income is for 2020. Figures are for households who reported receiving a Child Tax Credit payment in the last 30 days in data collected July 21–September 27, 2021. Modest differences between states may reflect sampling error.
Source: CBPP analysis of U.S. Census Bureau Household Pulse Survey public use files for survey weeks 34-38
- El crédito tributario por hijos
- Federal Payroll Taxes
- Federal Tax Expenditures
- Fiscal Stimulus
- Marginal and Average Tax Rates
- Tax Exemptions, Deductions, and Credits
- The Child Tax Credit
- The Earned Income Tax Credit
- The Federal Estate Tax
- Where Do Federal Tax Revenues Come From?
- Where Do Our Federal Tax Dollars Go?