(CBS Baltimore) – The updated child tax credit goes into effect. Starting July 15, courtesy of the American Rescue Plan, most parents will receive up to $ 300 per month per child. This extra money will help families struggling to make ends meet. It can even be the difference between eating and not eating, or paying and not paying the rent.
The improved child tax credit will be available to approximately 39 million families, equivalent to 65 million children, according to the Biden government. That covers around 88 percent of the country’s children. Around 13 percent of households with children were faced with food insecurity due to lack of money, according to census data from mid-June. According to the same data, around 20 percent of rental households with children were behind with their rent. Early estimates by the Center on Budget and Policy Priorities suggest that the expansion of the child tax credit will bring 4.1 million children past the poverty line.
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How much do they get?
For parents of children aged five and under, the IRS pays $ 3,600 per child, half as six monthly payments and half as a 2021 tax credit. That works out to be $ 300 per month and $ 1,800 at tax time . The amount changes to a total of $ 3,000 for each child ages six to 17, or $ 250 per month and $ 1,500 at tax time. The IRS makes a one-time payment of $ 500 for dependents under the age of 18 or full-time students under the age of 24.
Payments are based on the Modified Adjusted Gross Income (AGI) that is included in the parent’s or parent’s 2020 tax return. (AGI is the sum of wages, interest, dividends, alimony, pension distributions, and other sources of income minus certain deductions such as interest on student loans, alimony, and pension contributions.) $ 1,000 annual income over $ 75,000 for an individual and over $ 150,000 for a married couple. The service is fully refundable, ie it does not depend on the current tax burden on the recipient. Eligible families receive the full amount regardless of what tax they owe. The number of relatives who are entitled to benefits is not limited.
“They essentially opened it up to people with no taxable income, even non-applicants,” said Stephen Nuñez, lead researcher on guaranteed income at the Jain Family Institute, an applied research organization in the social sciences. (Nuñez is studying monetary policy, which involves fieldwork to answer policy-related questions about the social safety net.) “And they’ve raised it to $ 3,000 per child if they’re over six and to $ 3,600 for kids zero to five . So this represents a pretty significant increase in the generosity of benefit that researchers believe will have a huge impact on child poverty. Some estimates suggest that this achievement alone can lower the child poverty rate by around 40%. And of course, that means extra money for middle-class households that don’t fall below the federal poverty line but still struggle to make ends meet. “
“It shows that the United States is creating something like child support, something that many other countries are doing,” Nuñez continues. “Canada, UK, Spain, Germany, they have had tremendous success in combating child poverty and have received long-term benefits from doing so. Because research shows that if you reduce child poverty, these children will become healthier, more productive, and better educated adults. And of course that’s great for business and it’s great for society. “
What will it do for families?
While food and shelter are obvious ways to use the extra child tax credit, there are many ways it can help with raising and caring for children. An additional $ 250 or $ 300 per month could allow a parent to drive to and from work or childcare while at work. In other words, it could make a job possible.
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Many families are at an unforeseen huge expense before financial ruin. And the term “large expenses” is relative based on income. So a few hundred dollars more a month could enable parents to build some kind of fund for rainy days when life hits an unexpected blow.
Job loss can have devastating consequences for a household. The loss of state unemployment benefits in the absence of a job can be equally devastating. Almost half of American households affected by unemployment are children. It seems like a coincidence in time that the updated child tax credit will begin soon after many states stop accepting the federal unemployment benefit bonus for their citizens. A total of 26 states have or will cut the $ 300 weekly benefit prior to the official Labor Day end date. The extra money from the child tax credit will make up for some of the money the unemployed lose.
The results of a recent Basic Income experiment provide even more evidence of the benefits of these child tax credits. The city of Stockton, California sent $ 500 a month to a group of families who earned less than the city’s median income of $ 46,000 a year. The families mainly spent the money on essentials, including groceries, bills, and household items. The extra cash also reduced income volatility and likely the stress of not knowing when the next paycheck would arrive or how high it would be. It also had a positive effect on health, happiness and anxiety without reducing the will to work.
“It is good that we are reducing poverty,” says Yeva Nersisyan, associate professor of economics at Franklin & Marshall College. “And the fact that we could reduce it with a non-dramatic increase in the tax credit – we could almost double it, but it’s not that much in dollars – so the fact that we could have and we would not have done it . “I used to find it outrageous. But it also tells you that the way we think about poverty – the poverty line where we put it (which is an annual income of $ 26,500 for a family of four) – isn’t exactly realistic. “
“That’s why you can overcome the poverty line with a little more money,” continues Nersisyan. “But that doesn’t necessarily mean that you aren’t poor in a more realistic sense.”
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First published Wednesday, June 23, 2021 at 5:59 p.m. ET.