CHAMPAIGN, Ill. — Extending the child tax credit program beyond 2021 could promote financial stability among vulnerable low- and moderate-income families and have many other long-term economic and noneconomic benefits, according to a new report by a team of researchers affiliated with the Project for Middle Class Renewal at the University of Illinois Urbana-Champaign.
The team compared the potential impact of expanding the child tax credits with a similar program on the earned income tax credit conducted in Chicago during 2014-15. In that pilot study, 339 participants elected to receive up to half of their EITC funds as four recurring payments during the 2014 tax year.
The goal of the pilot – a collaborative research project of the U. of I. with the Center for Economic Progress, the City of Chicago Office of the Mayor and the Chicago Housing Authority – was to assess the administrative feasibility and financial impact on families of disbursing their EITC funds in recurring payments during the year versus a lump sum after they filed their tax returns.
Participants in the EITC pilot missed fewer work days, cut their reliance on payday lending in half and reduced their borrowing from friends and relatives, according to prior studies by team members social work professor Flavia Cristina Andrade, urban and regional planning professor Andrew Greenlee, human development and family studies professor Karen Kramer, and Ruby Mendenhall, a professor of African American studies and sociology and associate dean for diversity and democratization of health innovation at the Carle Illinois College of Medicine.
“Our analyses showed that permanently expanding the child tax credit program and providing it as recurring periodic payments could have similar benefits,” said Dylan Bellisle, the first author of the report and a postdoctoral research fellow with the Project for Middle Class Renewal.
“While the child tax credit differs in some respects, analyses of the EITC pilot study offer evidence that intra-year payments can be administratively feasible and points to the overwhelming benefits of providing recurring, no-strings-attached payments to low- and moderate-income families,” Bellisle said.
In a series of multilevel analyses, the team found that while the families who elected to receive periodic payments reported significantly higher levels of financial stress than their counterparts at the beginning of the study, over time their stress levels diminished because they had the resources to pay their bills on time, buy groceries and meet other obligations without borrowing money.
“The advance child tax credit payments, like the EITC periodic payments, provide families with a stable source of income that can help them mitigate the financial insecurity and distress that arises from income volatility driven by unstable and unpredictable work,” said Greenlee, whose research interests include relationships between housing instability and poverty.
Lower levels of financial stress promoted better mental well-being among the participants who received the periodic payments. At the completion of the yearlong pilot, just 10.6% of the people in the intervention group reported major depressive symptoms compared with 25.9% of their counterparts in the control group.
Along with a permanent expansion of the child tax credit, action is also needed to address the stress caused by systemic and structural racism, classism and sexism, said Mendenhall, who researches health care disparities and public health concerns in underserved populations.
“Families of color, particularly families led by Black women, face unique social, economic and political conditions that negatively impact their mental, physical and economic well-being and their children’s future opportunities,” she said.
“Researchers and policymakers should consider these interlocking conditions when evaluating the impact of the child tax credit expansion.”
Since 75% of parents in the EITC pilot allocated some of their payments to helping their college-going children, the researchers suggested that the CTC be expanded to include qualifying children ages 18-24 who are full-time or part-time students, as well as permanently disabled children of any age.
Policymakers and taxpayers are concerned that possible overpayments of the child tax credits could create a tax burden for recipients, Bellisle said. However, the team’s analysis of the EITC pilot found that only a small number of participants received overpayments, in part due to built-in safeguards such as a 50% ceiling on the amount they could receive as recurring payments.
Accordingly, child tax credit recipients are limited to receiving up to 50% of their funds as advance monthly payments, and the Internal Revenue Service created an online portal so recipients can update their dependent eligibility and banking information as needed.
Based on information from the Taxpayer Advocate Service and the IRS, the team noted that lower-income families may be more likely to encounter delays in receiving their payments due to errors on their tax returns and IRS prioritization rules for manually adjusted returns that created longer wait times for taxpayers who claimed both the EITC and the child tax credit.
Because delays in receiving tax refunds and tax credit payments can be particularly challenging for lower-income families, it is imperative to invest in research to understand which taxpayers are more apt to be affected and develop strategies to mitigate delays, the team said.