Child Tax Credit: How Much Money Should You Get This Month?

(CBS Detroit) -- Most parents started receiving a sort of monthly stimulus check in July. The advance Child Tax Credit pays parents up to $300 per month per child to help with the cost of raising them. Unlike many other public programs, there are no limits placed on the use of that money. When it arrives, parents can use it for whatever their household requires. The Internal Revenue Service (IRS) is due to send out the next payment on August 13. How much will the next installment be?

How Much Is The Child Tax Credit?

For parents of children up to age five, the IRS is paying $3,600 per child, half as six monthly payments and half as a 2021 tax credit. That changes to $3,000 total for each child ages six through 17. The IRS has made a one-time payment of $500 for dependents age 18 or fulltime college students up through age 24.

Payments are based on the modified adjusted gross income (AGI) reflected on a parent or parents' 2020 tax filing. (AGI is the sum of one's wages, interest, dividends, alimony, retirement distributions and other sources of income minus certain deductions, such as student loan interest, alimony payments and retirement contributions.) The amount phases out at a rate of $50 for every $1,000 of annual income beyond $75,000 for an individual and beyond $150,000 for a married couple. The benefit is fully refundable, meaning it does not depend on the recipient's current tax burden. Qualifying families receive the full amount, regardless of what they owe in taxes. There is no limit to the number of dependents that can be claimed.

As an example, suppose a married couple has a four-year-old child and an eight-year-old child and showed an annual joint income of $120,000 on their 2020 taxes. The IRS sent them a monthly check for $550 in July and will send them another this week. That's $300 per month ($3,600 / 12) for the younger child and $250 per month ($3,000 / 12) for the older child. Those checks will last through at least December. The couple will then receive the $3,300 balance -- $1,800 ($300 X 6) for the younger child and $1,500 ($250 X 6) for the older child -- as part of their 2021 tax refund.

Parents of a child who ages out of an age bracket are paid the lesser amount. That means if a five-year-old turns six in 2021, the parents will receive a total credit of $3,000 for the year, not $3,600. Likewise, if a 17-year-old turns 18 in 2021, the parents should receive $500, not $3,000.

An income increase in 2021 to an amount above the $75,000 ($150,000) threshold could lower a household's Child Tax Credit. The IRS is expected to update the Child Tax Credit Update Portal to allow claimants to adjust their income and custodial information, thus lowering their payments. Failure to do so could increase your tax bill or reduce your tax refund once 2021 taxes are filed. Recipients can also use the portal to opt out of periodic payments in favor of a one-time credit at tax time.

Eligibility requires that the dependent be a part of the household for at least half of the year and be at least half supported by the taxpayer. A taxpayer who makes above $95,000 ($170,000) -- where the income limits phase out -- will not be eligible for the expanded credit. But they can still claim the existing $2,000 credit per child.

"Big changes to the way that the tax credit is structured," says Stephen Nuñez, the Lead Researcher on Guaranteed Income at the Jain Family Institute, an applied research organization in the social sciences. (Nuñez studies cash welfare policy, that includes field work to answer policy-relevant questions about the social safety net.) "Much more generous, fully refundable, no longer any work requirement..."

When Does The Child Tax Credit Arrive?

Monthly deposits of the Child Tax Credit started on July 15. The next payment is due on August 13. Each subsequent payment will be issued on the 15th of the month through December of 2021. If the 15th is a weekend or holiday, like it is this month, the money will arrive on the closest prior business day. In 2022, the remaining balance will be issued as a credit when the recipient files their 2021 taxes. Most of those who are eligible didn't have to do anything to receive payments. The payments just started based on the information the IRS already has on file.

How Long Will The New Child Tax Credit Last?

The revised Child Tax Credit is scheduled to apply to 2021. The rules of reconciliation, which Democrats used to push through the stimulus package containing the expanded credit with a simple majority, don't allow for deficit spending. Legislation must be deficit-neutral or deficit-reducing for the year, as well as for the next five years and 10 years. The thinking was that political pressure from supporters of a widely popular program will force Congress to extend it in the years to come.

Biden later came out in support of extending the enhanced credit until 2025 as part of his American Families Plan. Many Democrats want to go a step further and make the revised Child Tax Credit permanent. An extension looks to be part of the $3.5 trillion budget blueprint that focuses on their various "human infrastructure" initiatives. The details are still pending, as Democrats pull together a package they feel can survive the reconciliation process.

What Does The New Child Tax Credit Mean For Families?

The first round of Child Tax Credit payments totaled $15 billion and reached households accounting for 60 million kids, according to the White House. That covers over 80 percent of the nation's children. Approximately 14 percent of households with children faced food insecurity due to lack of money, according to Census data from late June and early July of 2021. About 21 percent of renting households with children were behind on their rent, according to the same data.

Early estimates from the Center on Budget and Policy Priorities suggested that expanding the Child Tax Credit will push 4.1 million children beyond the poverty line. Numbers recently collected by the U.S. Census in its Household Pulse Survey show a sharp drop in food insufficiency and less difficulty with household expenses soon after the first payment arrived. Almost half of recipients spent at least some of the money on food, and almost a fifth of parents with young children spent money on childcare.

"It's a lot more generous," Nuñez confirms. "It's fully refundable, and it no longer has a work requirement. So that means that it is going to be particularly important for the poorest households, those who earn nothing, or who earn less than $2,500 a year in taxable income. There have been some simulations, some analyses of this particular plan that suggest that these changes are enough on their own to cut the child poverty rate in the United States by somewhere around 40 percent."

"So it's actually a huge impact on child poverty in the United States, Nuñez continues. "And this is consistent with what we've seen happen in other countries that have also introduced something like a child allowance. So, this kind of policy, although it's implemented and administered in different ways in different countries, is fairly common. It exists in Canada, it exists in the UK, in Germany, and other places in the world. And, in those places, it has had very similar results, cutting child poverty by a third or by 50 percent, relative to the baseline."

In what was likely a coincidence of timing, the updated Child Tax Credit started soon after many states stopped accepting the federal unemployment benefit bonus for its citizens. These states, most led by Republicans, discontinued the $300 federal unemployment benefit bonus for their citizens ahead of the official Labor Day end date, or at least attempted to. Alabama, Idaho, and Nebraska are among the states that stopped benefits on June 19. Arkansas, Florida, Ohio, and Texas followed on June 26. Maryland and Tennessee wrapped up benefits on July 3, and Arizona on July 10. But many workers have sued their states. Arkansas, Indiana and Maryland have since temporarily reinstated benefits. The additional money from the Child Tax Credit will offset some of the $300 per week that the unemployed will lose.

What Could The New Child Tax Credit Mean For Society And The Economy?

Some research suggests that reducing poverty would also have knock-on effects in the broader economy. The National Academies of Science, Engineering and Medicine released a report in 2019 called A Roadmap to Reducing Child Poverty that looked at how to cut poverty in half. It concluded that "the weight of the causal evidence does indeed indicate that income poverty itself causes negative child outcomes, especially when poverty occurs in early childhood or persists throughout a large portion of childhood."

The Center on Budget and Policy Priorities also found that income support leads to better health outcomes. People with more money can generally better provide for their children. That could mean healthier food, better housing, more frequent medical care, less stress, and so much more.

As Nuñez explains, "the reason why they're interested in reducing child poverty, in addition to child poverty being bad, is that there's some research that suggests that child poverty costs the U.S. economy, somewhere in the range of 800 billion to $1.1 trillion each year, because of higher crime, because of poor health outcomes for poorer children, and lower income levels, when they grow up. If you believe that estimate is largely correct, then cutting child poverty in half could have an enormous benefit to the economy as well. So not only is it helping children, reducing suffering. But in the U.S., these sorts of programs could pay for themselves."

The investment could very well pay off in the long run, on both the individual and national scale. People would be healthier and better educated, and then grow up to be more productive members of society. As the Center on Poverty and Social Policy at Columbia University pointed out in a February brief, "cash and near-cash benefits increase children's health, education, and future earnings and decrease health, child protection, and criminal justice costs."

According to their calculations, "converting the current Child Tax Credit to a child allowance ... would cost about $100 billion and would generate about $800 billion in benefits to society."

In a more theoretical sense, the Child Tax Credit will make the tax structure a little more progressive. Those earning less in income will ultimately pay less in taxes because of the credit. And by comparison, those earning more will pay more. As Yeva Nersisyan, Associate Professor of Economics at Franklin & Marshall College, points out, "any policy that makes your tax system more progressive is good for demand, because people at the lower end of the income distribution tend to have a high propensity to consume. So if you give $1 to somebody who's close to the poverty line, they're likely to spend all of that money. If you give an extra dollar to somebody who's making $200,000 or $300,000 a year, they're not likely to spend a lot of that dollar. They're likely to save most of it."

"It keeps demand higher in the economy," Nersisyan continues. "Higher demand is good because then that encourages more investment, increases productivity and so on so forth."

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