Posts Tagged "child tax credit"

Low-income Spend Tax Credit on Food, Rent

The fate of the recent expansion of the federal child tax credit is uncertain in the ongoing budget negotiations in Congress. What is clear is that poor and low-income families are putting the increased assistance to good use.

Low-income families figureNine out of 10 families earning less than $35,000 are spending the money on one or more essential living expenses, which include food, utilities, housing, clothing or education needs like books and after-school programs, according to an analysis of U.S. Census data by the Center on Budget and Policy Priorities.

The American Rescue Plan passed in March temporarily increased the credit from $2,000 to $3,600 per year per child for kids under age 6 and to $3,000 for older kids and teenagers. In another temporary provision in the legislation, the IRS sends the credit to families every month in the form of a monthly payment.

The child tax credit is also now fully refundable, which means that low-income people are eligible for the full credit even if they pay little or no income taxes. If the budget negotiations make this a permanent feature of the credit, the IRS would extend the federal assistance to 27 million more children in low-income families.

Unfortunately, the center estimates, there are some 4 million children in families with very low incomes that aren’t receiving the monthly payments, either because they didn’t file taxes in 2019 and 2020 or didn’t receive an economic relief check from the federal government. The IRS has created an online tool for parents to sign up and start receiving the credit.

The Center on Budget and Policy Priorities asked the people it surveyed about their specific uses for the monthly cash payments. Six out of 10 families earning under $35,000 said they are spending the money on food. About half are paying their utilities or housing expenses. Even the non-essential expenses seem like good uses for the extra funds, including car payments, childcare, and paying down debt.

Higher-income families also buy necessities with the extra cash. But low-income families struggle more to pay for their basic living expenses, and the center said they are using more of the money from the tax credit to pay for them. …Learn More

Will More Aid to Parents Be Permanent?

Happy children standing together

To lift families out of poverty during the pandemic, Congress is on the verge of passing a substantial increase this year in the standard child tax credit as part of President Biden’s broader relief package.

But despite the sharp divide over the $1.9 trillion package, some senators – both Democrats and Republicans – want to permanently increase federal assistance to families. Their goals range from reducing racial inequality and rural poverty to providing more financial stability for middle- and working-class parents.

The prospect of a bipartisan plan for increasing assistance to parents beyond this year is welcomed by advocates for the poor and lower-income workers. The proposals represent a belief “that all of society benefits when children are doing well,” said Myra Jones-Taylor, chief policy officer for Zero to Three, which promotes policies to help infants and toddlers.

Prior to COVID-19, she said 40 percent of infants and toddlers were in families below 200 percent of the poverty limit. Parents “didn’t have the financial resources to meet their [children’s] basic needs,” she said.

The current proposal in Congress for immediate pandemic relief would increase the per-child tax credit in 2021 from the current level of $2,000 to $3,600 for children under age 6 and $3,000 for older children and teenagers. This same increase is included in a bill by Democratic Sens. Michael Bennet of Colorado and Sherrod Brown of Ohio to make the larger tax credits permanent.

Republican Sen. Mitt Romney’s plan is even more generous. The Utah senator proposed $4,200 in annual cash payments for children under 6 and $3,000 for older children, and some Republicans may be willing to go along. Romney’s plan, if passed, “would arguably be the biggest anti-poverty measure since the Social Security Act of 1935,” Samuel Hammond, director of poverty and welfare policy at the Niskanen Center, a Washington think tank, said in an interview.

But Hammond said members of both parties are making serious efforts to alleviate poverty by targeting assistance to children. The United States has the highest poverty rate of any developed country, “because we spend so little on child benefits, and the benefits we do have cut out the poorest families,” he said. The current tax credit is not available at all to the unemployed and low-income families earning under $2,500.

Hammond and Jones-Taylor were among the panelists in a webinar last month at the Urban Institute to explore the pros and cons of each approach – a tax credit versus monthly cash assistance. …Learn More