Even Wealthy Parents Spent Child Tax Credit on Debt, Essentials, Census Data Shows

Even many higher-income families spent a lot of the cash paying off debt.

by Ethan Freedman

The expanded child tax credits, passed as part of this year’s coronavirus relief, have started giving many families a monthly check per child. Now, a new analysis finds that those payments have helped many of those families pay for necessary household supplies like food and clothing, as well as expenses like utilities and rent.

Every year, families can claim a tax credit for their kids. But this year, Congress made a few key changes — first, it raised the money per child from $2,000 to $3,600 for every child under 6 and $3,000 for every child aged 6-17. Second, it made the credit fully refundable, meaning even families paying less in taxes could get the full amount.

But perhaps most importantly, the new child tax credit can now arrive as monthly payments for many parents who sign up, instead of coming in when filing your taxes the next year. This year, those payments started going out in July — and a new analysis from the Urban Institute finds that that monthly influx of cash has already been a lifeline for millions of families.

The payments have been especially useful in supporting household needs.

Using data from the Census Bureau, the study found that over 51% of people living with kids spent some of that money on food, 30% spent some on clothes and 25% spent some on school supplies. The money has also been used on necessary expenses, as 29% reported spending some of the cash on utilities, 16% spending some on rent, and 12% spending some on vehicle payments.

Those allocations differed depending on a family’s income, however. Over 60% of adults making between $25,000 and $49,999 per year spent some of that money on food, compared to just over 40% of adults making more than $75,000 per year. That dynamic was similar for utilities as well — nearly 50% of adults earning less than $25,000 spent some of that money on utilities, while just about 15% of the highest-earning families did so.

And yet even many higher-income families put that money to use in the past few months. The study finds that 30% of adults making over $75,000 per year used that money mostly to pay off debt and 30% mostly spent that money, while just 40% put it mostly into savings. That’s definitely different from the lowest earners, 50% of whom used that money mostly to pay off debt and only 19% who mostly put it into savings. But it still means that many higher-income families found they could use the cash.

“I think in a lot of cases even high-income households had economic disruptions,” Elaine Maag, a researcher at the Urban Institute, told Fatherly. She notes that many two-earner families had one wage earner leave the workforce due to childcare needs, for example.

Maag also points out that Black and Hispanic people earning more than $75,000 per year were more likely to use some of the money to pay off debt than white adults in that income bracket. She speculates that this is due to those families potentially coming into the pandemic with fewer savings than white families, even at higher income levels.

The very lowest-earning adults were also the least likely to receive the tax credit as a monthly stipend, the study found. This trend is likely due to many of the lowest earners not needing to file federal tax returns, and so not in the IRS’s system for distribution. These parents can register at the government’s simplified return site from now until November 15th (less than two weeks from now!) to get money this year. But even if they don’t, they’ll be eligible to receive all the cash when/if they file taxes next spring.

“There’s still work to be done to make sure anyone who didn’t receive the payments knows they can file a tax return and get that money,” Maag says.

This analysis is just the latest showing that the expanded Child Tax Credits have been critical to many families in the past few months. An earlier analysis, also from the Urban Institute, found that extending this program for the next few years could have a massive impact on American child poverty — dropping it nearly in half.

Currently, just a one-year extension is written into the spending bill working its way through Congress. In addition, wealthier families will go back to receiving the credit when they file their taxes, while other families can continue to receive payments monthly. While this hasn’t become law yet, families can look at the impact of this year’s payments to see the effects of this novel poverty-fighting program already.