2021 Child Tax Credit reduced hardship for families in poverty, had no significant impact on employment

October 5, 2022

New research from the University of Michigan focuses on the effect of the 2021 Child Tax Credit on families living in poverty, noting that the monthly payments reduced certain types of hardship and had little to no impact on parents’ employment status.

As part of the federal government’s pandemic response, the 2021 expansion of the Child Tax Credit increased the amount of the credit, made more families eligible for the tax credit, and distributed half of the money as monthly payments of $250 to $300 per child from July to December 2021. A new policy brief by U-M public policy professors Natasha Pilkauskas, Katherine Michelmore, and Luke Shaefer focuses on what the expanded Child Tax Credit meant for the poorest families in the U.S., including those making less than $2,500 a year who are no longer eligible for the CTC since the 2021 expansion expired.

The researchers analyzed monthly survey responses from 2,000 to 3,000 people with children from across the U.S. who use the Providers app to manage their food benefits; 81% of survey respondents made less than $2,000 a month, including 22% who had no income. The analysis found a $500 monthly CTC payment was enough to reduce the number of hardships families experienced by 17%. Reports of food insecurity—the experience of not having enough nutritious food—dropped by one-third while families received the monthly payments.

“Every month, around 75% of parents reported they used the Child Tax Credit payments to pay bills. Other common uses were to pay for housing, food and child-related expenses like school supplies and children’s clothing. These are basic necessities that improve families’ material well-being,” said Pilkauskas, an associate professor of public policy.

Survey responses suggested the CTC payments made a less dramatic impact on families’ ability to pay for medical expenses, cover the full amount of a utility bill, and the need to rely on friends or family for food. The research found the CTC payments had no effect on: severe housing hardship, like eviction or homelessness; whether families decided to pay a bill; families’ transportation security; whether families reported having “everything they typically need”; total money families had on hand; the time the money on hand would last; whether they borrowed money from friends and family; and whether they visited a food pantry in the last month.

“It’s a bit surprising to see the Child Tax Credit payments had no effect on certain types of material hardship. In some cases, like severe housing hardship, the monthly payments may not have been enough to make a difference,” said Michelmore, an associate professor of public policy.

“With other forms of hardship—like total money on hand—families may have had to spend the credit quickly because their regular income is so low, and the relatively short period of payments may not have been long enough for families to get fully out of debt and achieve more financial stability.”

While some politicians and policymakers worried monthly cash payments would reduce people’s motivation to work, the survey analysis affirmed what other studies on the effects of the Child Tax Credit on employment found that the 2021 CTC had little to no statistically significant effect on employment for families with very low incomes.

The research also found little to no evidence of differences in the effects of the 2021 CTC by income level. There was some evidence the monthly payments reduced hardships among Black families more than white or Hispanic families, but the differences were not large.

“The 2021 monthly Child Tax Credit was short-lived, so it is hard to know what the effects of a longer-term, more stable credit would be. Available evidence suggests the expanded tax credit was effective at reducing material hardship for families with very low incomes and improving well-being,” said Shaefer, the Hermann and Amalie Kohn professor of social justice and social policy and faculty director of U-M’s Poverty Solutions.

Read the policy brief: The Effects of Income on the Economic Well-being of Families with Low Incomes: Evidence from the 2021 Expanded Child Tax Credit

Story originally written and published by Poverty Solutions.