36 million families face January without a Child Tax Credit check: "There will be times I won't eat"
For the last six months, 36 million families received a monthly check from the IRS through the expanded Child Tax Credit — a cash infusion that helped pay for groceries, buy school uniforms and ease the costs of raising kids. But now, families are facing the first month since July without a check from the government program, even as inflation hits a 40-year high and COVID-19 cases surge.
If President Joe Biden's Build Back Better Act had been passed, families would have received a CTC payment on January 14 (because the 15th is a Saturday, the IRS would have issued the checks on the preceding workday.) But that bill remains in limbo, which means parents will not get a check on Friday.
"The CTC went away, but grocery prices haven't gone down," said Stormy Johnson, 44, a single mother of three in Kingwood, West Virginia, who works as a student support specialist. "Now that I don't have that payment, the reality of life is that there will be times I won't eat to make sure my kids can."
Johnson, 44, said the loss of the payments means more stress for the entire family given that her children are aware she will skip meals to ensure they have enough food. She brings home about $2,200 a month after taxes, with $1,600 earmarked for rent, her car payments and car insurance. After paying for other bills such as utilities, she's left with $50 a month.
The $500 in CTC funds she received for her two youngest children "was a huge help," said Johnson, who also has 21-year-old child who was too old to qualify for the program. "That payment they are taking away just put a lot hurting on a lot of folks."
10 million kids at risk of poverty
There are plenty of working families like Johnson's, who live close to the financial edge despite being employed. Parents interviewed by CBS MoneyWatch said they are planning to cut back on essentials like food as well as expenses such as cable TV to try to cope with the double-whammy of inflation on top of the expired benefit. Many worried about the impact on their children.
Anti-poverty experts say the impact on children could be extreme. Without the continuation of the monthly payments, about 10 million children are at risk of slipping into poverty, according to a recent estimate from the Center on Budget and Policy Priorities (CBPP).
The expanded CTC expired on December 31 when the Build Back Better Act stalled amid opposition from Senator Joe Manchin, a Democrat from West Virginia whose support is crucial for the bill's passage in a divided U.S. Senate. Although House Speaker Nancy Pelosi said Sunday she believes a deal can still be reached with Manchin, it would not come in time for families to receive payments this week.
Manchin has supported some form of a work requirement for people receiving the payment, out of concern that automatic government aid could cause people to quit their jobs.
Yet the tax credits did not cause an immediate exodus from the workforce, as some lawmakers had feared. The Bureau of Labor Statistics reported that the percentage of people with jobs increased from 58% the month before the monthly payments began to 59.5% last month. That same trend occurred in West Virginia, where the employment-population ratio rose to the pre-pandemic level of 52.9%.
There's an academic debate over whether the credit could suppress employment in the long term, with most studies suggesting that the impact would be statistically negligible.
It's unclear whether the CTC will move forward in its expanded form even if Build Back Better is revived. Wall Street analysts, for one, are skeptical that lawmakers will renew the expanded program, with Goldman Sachs calling a full extension "very unlikely."
"A return to the pre-2021 policy looks most likely, though a much more modest expansion is still possible," analysts with the investment bank said Monday in a report.
The size of the credit will be cut in 2022 to $2,000 per eligible child, with full payments only going to families that earned enough income to owe taxes, a policy choice that will limit the benefits for the poorest households. And the credits for 2022 will come only once people file their taxes at the start of the following year.
Spending on children
Nine of 10 families earning an annual salary of less than $36,000 spent the monthly Child Tax Credit payments on essentials, according to CBPP research. The top three spending categories were food, utilities, and rent or mortgage payments, the left-leaning think tank noted.
Among them is Melissa Boyles, 63, who is caring for her 16-year-old granddaughter, both of whose parents have passed away. With the extra $250 a month, Boyles was able to buy extras like a $36 roast and a type of pasta that her granddaughter liked, as well as new clothing for the teen.
To help ease the pain of losing her family, Boyles got her granddaughter a puppy, but is now worried she might not be able to pay for the dog's upkeep.
"I am concerned about giving the puppy up — he needs shots and dog tags, which cost $6, but that's a lot of money when you need milk and bread," said Boyles, who explained that she and her husband are both on disability and receive a combined total of about $2,000 a month in benefits.
She is also anxious about Manchin's reported insistence that if the expanded CTC were to be renewed, it should come with a work requirement — neither she nor her husband work given that they are disabled. In Boyles' view, there are many grandparents like her who are taking care of their grandchildren and are either retired or disabled, and she said this requirement would simply hurt children who are at no fault.
"Why should she be punished because her parents are deceased and we are elderly grandparents taking care of her?" Boyles said of her granddaughter.
Local economies take a hit
The expanded CTC not only provided families with more cushion in their budgets, but also helped buoy local economies because the money was typically spent on groceries, rent, clothing, eduction and other daily expenses.
In 2021, the enhanced program was projected to increase total U.S. consumer spending by $27 billion and generate $1.9 billion in new local and state taxes, according to a study from the moderate Niskanen Center. Officials in Florida said this month that the state collected almost $400 million more in taxes than it had expected, pointing to the CTC as one factor behind the surplus, according to the Tampa Bay Times.
But as families pare spending, local retailers and businesses could also feel the pinch. Getting a monthly payment, rather than claiming the Child Tax Credit annually when filing taxes, was a boon for families since it allowed them to budget, said Natacha Chavez, a mom of two from Phoenix, Arizona, whose $500 monthly CTC check ended in December.
Because Chavez lost her job over the holidays, the loss of the tax credit will be more keenly felt on household finances, she noted. Without the extra money, she is cutting back on everything from gasoline to groceries.
"With the price of gas going up, it didn't feel so so harsh because there was that extra money in your budget" from the CTC, Chavez told CBS MoneyWatch. "Now we have to think, 'Do we want to make that extra trip?'"
Omicron surge, winter costs
Parents are losing the monthly payments not only as inflation spikes, but as the nation suffers another surge in COVID-19 cases due to the Omicron variant. That's straining family budgets and making for tough decisions. Chavez noted she would like to buy high-qualify K95 masks for her family, but said the cost is prohibitive.
Johnson, the single parent in West Virginia, said she worries about schools returning to remote classes because of the latest COVID-19 surge, which would mean her children would lose free in-person breakfasts and lunches at school. "I'll really struggle" if that happens, she said.
Others point out that the child payments are ending as families also face higher costs for winter heating, with inflation sharply pushing up energy costs. The government has warned that households could see their heating bills rise more than 50% compared with last year.
"We are in the middle of the winter in West Virginia, and people won't be able to pay their gas bill, won't be able to afford their food," said Brian Butcher, a city counselor in Morgantown, West Virginia, who is also a retail manager.
Butcher, 34, said he had been concerned the expanded CTC wouldn't be renewed due to Manchin's opposition to the tax credit, which had provided Butcher $550 a month for his two children. To prepare, he and his wife have cut back on their grocery budget, chopping it to $100 per week; and refinanced their car payment to lower their monthly costs.
The CTC reached about 350,000 children in West Virginia, said Ash Orr, a federal campaign advocate for the West Virginia Center on Budget & Policy. About 50,000 of those children are likely to slip into poverty without the payments, with rural children at higher risk, the nonpartisan policy research group found.
"When you are located in these rural areas, things as simple as electric and heating are more challenging," Orr noted.
For now, families say they are reworking their budgets, with some holding out hope that the expanded CTC may return in some form. Anti-poverty experts are also continuing to advocate for the tax credit. Without legislative changes, the CTC in 2022 will revert to its prior form — a $2,000 tax credit taken annually, versus the expanded CTC's credit of up to $3,600 per child, with half provided in monthly cash payments.
In the meantime, parents should file their tax returns as soon as they can to claim the other half of their CTC, which the IRS will provide via their tax refund, noted Greg Nasif, political director of anti-poverty nonprofit Humanity Forward. The IRS will start processing tax returns on January 24.
"With inflation, the Omicron variant and with the CTC coming to an end, it's a one-two-three punch that families can't take," Nasif said.
—With reporting by the Associated Press.