Many parents relying on the Child Tax Credit left the workforce after payments expired

Parents who received advance Child Tax Credit payments last year experienced a sharp decline in employment after the credit expired this year, according to a new analysis, just as the Omicron variant spread throughout the country.

Employment levels among CTC recipients dropped from 72.4% to 68.3% after the CTC ended in December – representing 1.4 million parents who left the workforce — according to a study led by researchers at the Washington University in St. Louis’ Social Policy Institute (SPI) and Appalachian State University.

The findings come three months after Congress failed to renew the credit payments. The measure hit a roadblock over concerns that it could curb employment among parents and potentially ramp up inflation.

"Parents’ employment did decline substantially ...[their] situations appear more vulnerable to the pandemic than the employment of people without children," Stephen Roll, research assistant professor at Washington University’s Brown School and co-author of the study, told Yahoo Money. "This unemployment spike among parents may be due to different factors, such as the need to care for sick children, school/daycare closures, etc."

"Given this, it is likely that many parents were facing two challenges at the same time: losing employment income due to the Omicron wave, and losing the CTC payments that many of them were using to put food on the table and cover essential expenses," Roll added.

Approximately 35 million American households received up to half of the Child Tax Credit in advance monthly payments between July and December last year, a measure that was part of the American Rescue Plan enacted in March 2021.

The credit provided families with $3,600 for every child in the household under the age of six, and $3,000 for every child between the ages of six and 17. That was up from the credit’s original maximum of $2,000 per child. Even more crucial, the American Rescue Plan made the CTC fully refundable – meaning that low-income parents could qualify for the full benefit even if they did not work.

“The [credit] helped middle-income families afford childcare, which can reduce their barriers to employment,” the SPI researchers wrote in the study.

Since the start of the pandemic, the average annual cost of childcare in the U.S. has increased. Between 2018 and 2020, the full-time cost of center-based child care increased 5% to $12,411 for infants, 5% to $11,379 for toddlers, and 7% to $10,008 for four-year-olds, according to a LendingTree report.

“The reality most Americans face is that it's hard to update a resume when you're busy watching kids; it's a huge leap to hire a babysitter before you get hired, or get your first paycheck,” Greg Nasif, director of public affairs for Humanity Forward, told Yahoo Money. “So, without the Child Tax Credit's monthly help, parents think if they can keep it together with minimal working hours, why rock the boat? And the result is they stay home.”

Low- and moderate-income households are already feeling the financial strain without the support of CTC payments, according to a survey of more than 3 million members of ParentsTogether Action, a family advocacy nonprofit.

One in 5 respondents said they were unable to afford enough food – while 22% said they were unable to meet basic needs. Approximately 15% said they had to cut back on work hours because they couldn't afford childcare.

“The cost of childcare is out of control as a matter of supply and demand,” said Nasif. “Subsidizing child care will help some families but drive more out. The high cost and low supply of childcare, intricately related, are together keeping millions of working-age people out of the labor force. We need a creative solution to the labor shortage. Rather than subsidizing childcare, we should go back to giving parents direct monthly support from the Child Tax Credit. Trust American parents to figure out their own way of providing for their kids.”

According to the SPI analysis, the share of parents reporting they were unemployed due to lack of childcare fell from 26.5% in June to 18.6% in August of last year. The CTC payments started in July. The shift was more pronounced in groups earning $50,000 to $99,000 per year.

But that trend could reverse, as a vast majority of parents and caregivers expressed concern about their finances in the absence of credit payments, according to the ParentsTogether Action survey. Approximately 75% of households said the payments made a “huge difference” for their family.

“Right now it’s sort of a perfect storm contributing to a really difficult time for families,” Allison Johnson, a campaign director with ParentsTogether Action, told Yahoo Money. “Between rising costs and then the first couple of months with the wave of COVID and uncertain childcare… paired with missing the CTC monthly payments have meant that families we're hearing from are really struggling to get by.”

Already, 87% respondents said they used all of their CTC, and parents are growing anxious as the fate of the monthly credit payments remains uncertain.

“It’s up to Congress to reach a compromise that ends this disruption of monthly support for American families,” says Paolo Mastrangelo, head of policy and government affairs at Humanity Forward. “While the Child Tax Credit still exists, in this environment for the majority of families a lump-sum payment is nowhere near as useful as the monthly payments are– we hope Congress can find a way to fix this.”

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

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