The Impact of the Enhanced Child Tax Credit on Lower Income Households
Our research adds to the growing body of research that the expanded CTC is an incredibly effective mechanism for alleviating the most pressing challenges faced by lower-income households with children
The Impact of the Enhanced Child Tax Credit on Lower Income Households
The American Rescue Plan, one of the most significant policy responses to alleviate child poverty in decades, made fundamental changes in enhancing the Child Tax Credit (CTC). In response to the pandemic, the law expanded the CTC for tax year 2021 to ensure a minimum level of economic support for all families raising children. It also adopted a form of periodic payment, disbursing from July to December half the expected credit in monthly payments per child of $300 or $360 (depending on the child’s age) and then providing the balance through tax return filing early in 2022.
Research conducted by SaverLife during the latter half of 2021, when recipients received monthly payments, documents how families used the funds to cover basic needs and to invest in their children. SaverLife found that monthly payments helped families afford groceries, pay rent, and cover other essentials, but that the families knew the payments were temporary and were therefore unlikely to earmark the funds for larger, longer-term investments.
SaverLife, Commonwealth, and Neighborhood Trust Financial Partners (Neighborhood Trust) followed up with CTC-eligible families after most filed their 2021 tax returns. We conducted interviews and surveys to assess the impact of the enhanced credit on families’ financial health. Although we focused on the second half of the CTC payment, which was delivered as a lump sum payment as part of the tax refund, we also asked recipients about their tax filing experience and what a continuation of an expanded credit would mean for their families.
Understanding the impact of the enhanced CTC
We found that recipients generally received larger tax refunds than expected and that these contributed to financial stability—especially for households with incomes under $20,000—by helping parents stay current with housing payments and pay for essential items for their children.
What we found: Key findings
Conclusion
Our research adds to the growing body of research that the expanded CTC is an incredibly effective mechanism for alleviating the most pressing challenges faced by lower-income households with children. Both the monthly payments disbursed in 2021 and the remaining half delivered as part of 2022 tax refunds provided critical financial stability for families, having an enormous impact on their overall financial health. By providing flexible funds, the enhanced CTC allowed families to allocate resources where they needed it most.