• Oops!
    Something went wrong.
    Please try again later.

Child Tax Credit: Child poverty likely will spike this month after monthly payments expired

·Personal finance writer
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

The absence of the advance Child Tax Credit (CTC) payment this month could push nearly 4 million children into poverty, a new study projects.

The monthly child poverty rate is estimated to jump to 17% in January from 12% in December, according to the Center on Poverty and Social Policy at Columbia University, marking the highest monthly rate since December 2020.

The estimates come after more than 36 million families received their sixth and final monthly CTC payment in mid-December and as the future of the credit’s expansion remains uncertain on Capitol Hill.

“It is largely mechanical that if you take away the Child Tax Credit that incomes are going to plunge,” Claudia Sahm, director of macroeconomic research at the Jain Family Institute, told Yahoo Money. Sahm was not involved in the study.

WASHINGTON, DC - DECEMBER 13: Local residents, Cara Baldari and her nine-month-old daughter Evie (L) and Sarah Orrin-Vipond and her eight-month-old son Otto (R), join a rally in front of the U.S. Capitol December 13, 2021 in Washington, DC. ParentsTogether Action held a rally with parents, caregivers and children to urge passage of the Build Back Better legislation to extend the expanded Child Tax Credit that will expire on January 15, 2022. (Photo by Alex Wong/Getty Images)
Local residents, Cara Baldari and her nine-month-old daughter Evie (L) and Sarah Orrin-Vipond and her eight-month-old son Otto (R), join a rally in front of the U.S. Capitol in Washington, DC. ParentsTogether Action held a rally with parents, caregivers and children to urge passage of the Build Back Better legislation to extend the expanded Child Tax Credit that expired on January 15, 2022. (Photo by Alex Wong/Getty Images)

The analysis estimated that the credit reduced monthly child poverty by close to 30%, preventing 3.7 million children from falling into poverty in December 2021. That included 163,000 Asian children, 737,000 Black children, 1.4 million Latino children, and 1.4 million white children.

Congress last month failed to extend the expanded CTC program, which was originally part of the Biden-backed American Rescue Plan passed in March 2021. The program increased the credit amount, authorized half to be distributed in advance each month, and made the credit fully refundable, allowing families with little to no income to qualify for the credit.

Supporters of the credit hailed it as one of the largest anti-poverty measures in modern history, providing economic relief to millions of households with children, including families in deep poverty.

“The monthly Child Tax Credits have buffered family finances amidst the COVID-19 pandemic, reducing food insufficiency among low-income families with children and allowing families to meet other basic needs — all without negative employment effects,” the analysis stated.

The majority of families earning under $35,000 per year spent a portion — if not all — of the CTC payments on food, utilities, housing, and education, according to U.S. Census data.

LOS ANGELES, CALIFORNIA - JULY 15: House Speaker Nancy Pelosi (D-CA) attends a press conference on the newly expanded Child Tax Credit at the Barrio Action Youth and Family Center on July 15, 2021 in Los Angeles, California. Many Americans with children began to receive checks today as a result of the passage of the Child Tax Credit legislation. (Photo by Mario Tama/Getty Images)
House Speaker Nancy Pelosi (D-CA) attends a press conference on the newly expanded Child Tax Credit at the Barrio Action Youth and Family Center on July 15, 2021 in Los Angeles, California. (Photo by Mario Tama/Getty Images)

Child tax credit benefits reached 61.2 million children by the year end

Last year, the Internal Revenue Service (IRS) paid out six months of advance CTC payments — starting in July — worth up to $250 per child ages 6 to 17 and up to $300 per child under 6.

The payments initially reached 59.3 million children in July and eventually 61.2 million children at year end, an increase of 2 million over six months since its rollout. Over that span, the total number of children kept out of poverty grew by more than 700,000, an increase of over 23%, the center found.

Making the credit fully refundable also meant that Black and Latino children, who had been disproportionately left out of the Child Tax Credit prior to the 2021 expansion, saw important anti-poverty gains last year, according to the report.

The first payment reduced child poverty among Black children by 21% in July and the sixth payment reduced it by 25%, according to the analysis. Similarly, the first payment reduced Latino child poverty by 25%, while the last payment reduced Latino child poverty by 30%.

(Credit: Center on Poverty and Social Policy, Columbia University).
(Credit: Center on Poverty and Social Policy, Columbia University).

‘Tax refunds will buffer to some extent’

The enhanced CTC was included in the Democrats’ Build Back Better plan — extending it for another year — but it didn’t garner enough support to pass Congress. Democrats may propose its expansion again — a move President Joe Biden supports — but some lawmakers want to include work and income requirements, which would shrink the credit's poverty-fighting effects.

“The new Child Tax Credit is a support to working families and middle-class families who are doing their best to support their kids,” Sahm said. “If you reinstate the work requirement, your effect on child poverty is basically gone.”

Families will get the remaining half of the Child Tax Credit in their tax refund after they file their federal returns. But the refund is no replacement for the income benefits the CTC provided, Sahm said.

“Tax refunds will buffer to some extent the loss income of the Child Tax Credit,” Sahm said. “However, the Child Tax Credit that low-income families received for six months allowed parents or guardians to change their budget and spending plans for the year and do more for their kids. But that money is gone, so they are back to their original budget, and back to spending less on their kids.”

YF Plus
YF Plus

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

Read the latest personal finance trends and news from Yahoo Money.

Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting