Millions of American families plan for 'life-changing' Child Tax Credit payments

When the monthly Child Tax Credit payments start this week, the Meyette family of Fontana, California, will see their household income increase by 25% — a much-needed boost at this time.

Erica Meyette recently underwent surgery and her husband Jonathan, who is the sole breadwinner, missed two weeks of work to care for her. The $600 the family will get for their two daughters will go to expenses, savings, and any medical debt they incur.

“So $600 a month is an increase of big proportions when it means we can pay that [the medical debt] off sooner while still paying for our lives and putting money away for our children,” Erica Meyette, 22, told Yahoo Money. “Even just the first payment alone is gonna be helping us.”

Those first monthly payments of $300 per child start going out this week to approximately 36 million eligible households, according to the Internal Revenue Service. These advance payments were made possible by the $1.9 trillion American Rescue Plan, which increased the credit this year to $3,600 for children under 6 and $3,000 for children between 6 and 17, and will continue monthly through December.

Supporters of the credit expansion describe it as a robust anti-poverty tool.

The one-year expansion provides a $111 billion injection to eligible households, according to an analysis by ITEP, and nearly 75 million children stand to benefit from the payments. The 20% of families that make less than $21,300 will see the biggest boost in income of 35% — getting $4,470 on average, half of which could be distributed monthly.

“This is super targeted to lower income families,” Aidan Davis, senior policy analyst at the Institute for Taxation and Economic Policy (ITEP), told Yahoo Money. “The families that are being targeted through this enhancement are families that are struggling to pay for rent, keep up with necessities, or they're having trouble paying for things like diapers, school supplies, and putting food on the table throughout the year.”

Read more: Top 10 tax mistakes — and how to avoid them

Almost two-thirds of the CTC benefits will go to the bottom 60% of families, those making less than $70,000 a year like the Meyette family, according to ITEP.

“It gives us the ability to build a cushion that we previously would not have had and to put money aside for our daughters,” Erica Meyette said. “We also are able to address medical debt that we have that we haven’t been able to touch due to living paycheck to paycheck.”

‘Fully refundable is really a game changer’

The credit was also made fully refundable under the American Rescue Plan, meaning families can get the full credit even if it’s more than what they paid in taxes. That extends the credit to families of millions of children who were left behind by the credit before.

Previously, only a portion could be refunded depending on what a family earned. That prevented some low-income families with children from getting the full credit. Now, a third of children who previously did not qualify for the full federal child tax credit because their families don't make enough money to be able to do so will be eligible, according to ITEP.

“All the changes are incredibly valuable but the move to make it fully refundable is really a game changer, especially for the poorest families,” Davis said. “Refundability is key to allowing the child tax credit to have a really significant impact on reducing child poverty in the United States.”

Child poverty will be reduced by half this year because of the enhanced CTC, decreasing from 13.7% in 2020 to 6.5%, according to estimates by the Urban Institute.

As part of his American Families Plan, President Joe Biden also is proposing to extend the expansion of the CTC through 2025, a move that would be “life-changing for a lot of parents," said Andrea Osteen of Phoenix, who plans to use her $600 CTC payment toward child care once her husband who’s been working remotely returns to the office.

“The pandemic revealed more to people about the weight of childcare,” Osteen said. “Anything that we can get that helps make childcare more affordable and more accessible to most people is beneficial to our society as a whole.”

Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova

Read more:

  • Some workers finally have the upper hand in the job market

  • Millions of tax refunds may be delayed as IRS backlog swells, report finds

  • Biden's latest executive order empowers workers in 3 key ways

  • Read more personal finance information, news, and tips on Cashay

Source: Read Full Article