Families with Low Incomes and the Child Tax Credit: Who is Still Missing Out?
By Natasha Pilkauskas and Katherine Michelmore
Since July, the vast majority of families with children under 18 have been receiving a monthly payment from the Internal Revenue Service (IRS) as part of the temporarily expanded Child Tax Credit (CTC) included in the American Rescue Plan Act (ARPA). The expanded CTC is much larger than the previous version, providing families with an annual credit worth $3,600 per child under age 6 and $3,000 per child aged 6 to 17. Families are receiving half the total tax credit as monthly payments ($250-$300/child) between July and December this year, with the remainder of the credit paid out after parents file their 2021 taxes.
The current policy is distinct from other tax credits in that it is paid monthly and available for families even if they have no earnings, similar to monthly child allowances available in many Western nations. The goal of the expanded CTC, and similar programs in other countries, is to help parents manage the added costs of raising a child to better ensure healthy child development. Because this credit goes to families with little or no earnings, it has the potential to dramatically reduce child poverty. In fact, estimates suggest the CTC expansion could reduce child poverty by as much as half and that the first few months of the credit have already lifted 3.5 million children out of poverty.
However, the full anti-poverty impact of the expanded CTC will only be realized if all eligible families receive their payments. Although the IRS reported that 60 million children received the CTC (or 90% of those eligible to receive the credit), millions of children are still not benefiting from the CTC. In this brief, we try to better understand which children are still not receiving
the monthly benefit.
To examine this question, Poverty Solutions partnered with Propel, creators of the Providers app (formerly Fresh EBT), which helps more than 5 million low-income families manage their Supplemental Nutrition Assistance Program (SNAP) benefits. Families in our study have very low incomes, making on average a little over $10,000 per year, and many (about 30%) are unemployed. By focusing on a population of parents with low incomes, this brief focuses on CTC receipt among a group that is particularly likely to be at risk of not receiving payments. We highlight new findings regarding receipt of the tax credit among a very low-income population, building on findings reported in an earlier brief.
- Sixty-eight percent of families with very low incomes got the October Child Tax Credit (CTC) payment, a rate of receipt that is comparable to the August and September payments.
- Although a total of 32% of families with very low incomes did not receive the October CTC payment, 4% had filed for the credit but were awaiting a payment, and another 7% reported not receiving the credit for “valid” reasons, such as opting to get the lump sum payment or another parent receiving the credit. Thus, about 1 in 5 eligible parents (21%) did not receive the October CTC payment for other reasons.
- Employed parents and families with at least $500 of monthly earnings were substantially more likely to receive the October CTC than unemployed parents and families with little or no monthly earnings, suggesting that the expanded CTC is still missing the most vulnerable families.
- Hispanic parents and those who took our survey in Spanish were much less likely to have received the October CTC, despite relatively high rates of tax filing, suggesting additional barriers faced by these groups.
Our findings suggest the CTC is reaching the majority of families with low incomes. Each month, about two-thirds of respondents report receiving a CTC payment, and as of November, approximately three-quarters of respondents reported receiving a payment in at least one month between July and October. While these rates are somewhat lower than those reported elsewhere, the respondents in our survey are much more economically disadvantaged than the population overall. Additionally, many of those who report not receiving the CTC in October state they did not receive the credit for some other valid reason, such as another parent claiming the child or opting for a lump sum payment (7%), and another 4% report their credit is pending, which may represent a payment in progress or another potential issue we cannot observe. Together, this suggests that about 75%-80% of families either received the benefit in October, are waiting to receive it, or did not receive the credit for valid reasons.
Nonetheless, this high overall rate of receipt masks significant economic disparities in who receives the benefit within this low-income sample. Although we cannot determine why families are not yet receiving the credit, it is clear that employed individuals and those with higher family income were substantially more likely to report receiving the CTC in October, suggesting the monthly credits are still not reaching the most vulnerable families.
As Congress debates a potential extension of the expanded CTC, it is essential we continue to search for ways to reach families who have not yet gotten the CTC to reduce the disparities we discuss here. Additionally, we continue to find relatively low rates of CTC receipt among Hispanic parents and households that took the survey in Spanish, despite similar rates of tax filing between these groups and other respondents. This finding suggests Hispanic and Spanish language parents face additional barriers in receiving their monthly CTC benefits, an area that requires further research to understand why this differential might occur.