What does the updated credit mean for families? – CBS Pittsburgh
(CBS Baltimore) – The revised child tax credit is about to come into effect. Beginning July 15, most parents will receive a monthly payment of up to $ 300 per child, thanks to the American Rescue Plan. That extra money, like recurring stimulus checks, can really add up, especially for families at the lower end of the income scale. It can 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, representing 65 million children, according to the Biden administration. This covers about 88 percent of the country’s children. About 13% of households with children faced food insecurity due to lack of money, according to census data from late May and early June 2021. About 21% of tenant 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.
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How much will you get?
For parents of children up to the age of five, the IRS will pay $ 3,600 per child, half of six monthly payments and half of a tax credit for 2021. This comes down to $ 300 per month and $ 1,800 at tax time. The amount increases to $ 3,000 in total for each child aged six to 17, or $ 250 per month and $ 1,500 at tax time. The IRS will make a one-time payment of $ 500 for dependents aged 18 or full-time students up to the age of 24.
Payments will be based on the Modified Adjusted Gross Income (AGI) reflected on the 2020 income tax return of a parent or parents. (AGI is the sum of salary, interest, dividends, alimony, retirement distributions, and other sources of income minus some deductions, such as interest on student loans, child support payments and pension contributions.) The amount gradually decreases at a rate of $ 50 for every $ 1,000 of annual income over $ 75,000 for an individual and over $ 150,000 for a married couple. The benefit will be fully refundable, which means it will not depend on the recipient’s current tax burden. Eligible 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.
âThey basically opened it up to people who have no taxable income, even non-tax filers,â according to Stephen NuÃ±ez, senior researcher on guaranteed income at the Jain Family Institute, an applied social science research organization. (NuÃ±ez studies social assistance cash policy, which includes fieldwork to answer policy questions regarding the social safety net.) Children zero to five. So this is a fairly large increase in the generosity of the benefit, and one which, according to the researchers, is likely to have a huge impact on child poverty. Some estimates suggest that this benefit alone can reduce the child poverty rate by around 40%. And, of course, for middle-class households, those who don’t fall below the federal poverty line but still struggle to make ends meet, that will mean extra money.
âThis represents the United States creating something like a child allowance, which many other countries are doing,â NuÃ±ez continues. âCanada, UK, Spain, Germany, they’ve had huge success in reducing child poverty, and they’ve reaped long-term benefits for that as well. Because research shows that as you reduce child poverty, those children grow into healthier, more productive, and better educated adults. And, of course, it’s great for the economy, and it’s great for society.
What will this do for families?
While food and shelter are obvious ways to use the extra child tax credit money, there are many ways it can be useful in raising and caring for children. An additional $ 250 or $ 300 per month could allow a parent to have round-trip transportation to work or daycare while at work. In other words, it could make it possible to have a job.
READ MORE: Child tax credit: who is entitled to a monthly check?
Many families are an unexpected big expense away from financial ruin. And the term “large expense” is relative in terms of income. So, a few hundred extra dollars a month could allow a parent to build up some sort of rainy day fund when life takes an unexpected blow.
Losing a job can be devastating for a household. Equally disruptive can be the loss of government-provided unemployment benefits in the absence of a job. Almost half of American households affected by unemployment include children. In what appears to be a coincidence of timing, the updated child tax credit will begin shortly after many states stop accepting the federal unemployment benefit premium for their citizens. A total of 26 states have removed or will remove weekly benefits of $ 300 before the official Labor Day end date. The extra money from the child tax credit will offset some of the money the unemployed will lose.
The results of a recent Basic Income experiment provide even more clues about the benefits of these child tax credit payments. The city of Stockton, Calif., Sent $ 500 per month to a group of families earning less than the city’s median income of $ 46,000 per year. Families mainly spent the money on essentials, including food, bills and household items. The extra cash also reduced income volatility and possibly the stress of not knowing when the next paycheck would come or how much it would be. It also had a positive effect on health, happiness and anxiety without reducing the will to work.
âIt’s good that we are reducing poverty,â says Yeva Nersisyan, associate professor of economics at Franklin & Marshall College. “And the fact that we can reduce it with an increase in the tax credit that’s not dramatic – we maybe almost double it, but in dollar terms it’s not that much – so the fact that we could have done it and we hadn’t done it sooner, I think it’s a bit outrageous. But it also tells you that the way we think about poverty – the poverty line, where l we have placed (which equates to an annual income of $ 26,500 for a family of four) – it’s not really realistic.
âThat’s why a little more money can push you above the poverty line,â Nersisyan continues. “But that doesn’t necessarily mean you’re not poor in a more realistic sense.”
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First published Wednesday, June 23, 2021 at 5:59 p.m. ET.