As Congress considers the future of the Build Back Better bill, a growing body of research indicates that expanded Child Tax Credit (CTC) payments are acting as a significant support to the financial health of individuals and families struggling to recover from the Covid-19 crisis.
However, like the Economic Impact Payments (EIPs) before them, CTC payments must overcome a number of institutional obstacles before they reach the intended recipient. Research in early 2021 by the Financial Health Network and the Brookings Institution found that 1 in 20 eligible recipients had not received their CARES Act EIP after 6 months, and 1 in 10 Americans received their EIP as a paper check in the mail despite having a bank account capable of receiving direct deposit. Ultimately, CARES Act EIP recipients paid an estimated $66 million in check cashing fees to access the economic relief they were entitled to.
While the implementation of the EIP program expedited solutions to some institutional obstacles, many challenges remain that continue to impede the distribution of CTC payments. In order to inform policymakers, consumer advocates, and industry stakeholders about the nature and cost of these persistent challenges, the Financial Health Network will undertake research to determine how long CTC recipients might have waited to receive their payment, how much they might have spent in fees to access their payment, and how they ultimately used their payment.
This research is supported by Visa, and will draw on a survey of households with children, as well as the Financial Health Pulse and publicly available data from the Treasury Department and the Internal Revenue Service (IRS).
Early Challenges and Success
Throughout the second half of 2021, the Treasury Department and the IRS have been working closely to distribute CTC payments under the American Rescue Plan Act of 2021 (ARPA), which provided for the first six months of CTC payments to be paid out on a monthly basis. Under ARPA, households with children are eligible for monthly CTC payments of $300 per child under 6 years old, and $250 per older child under 18. These payments are broadly available to most American families, higher income families receiving smaller amounts per child. According to data from the Treasury Department, the average CTC payment in July was $423, with that vast majority (86 percent) receiving their CTC payment as a direct deposit.
However, as more and more households have taken action to ensure they receive the CTC payments they are entitled to, implementation challenges have persisted. As with the EIP program, many Americans continue to receive CTC payments as paper checks. Almost 5 million households received their CTC payment as a paper check in July, and a technical problem in August resulted in several million more receiving paper checks, potentially creating inconveniences and additional costs for recipients. Moreover, the White House estimates that more than 2 million children in non-filer households may not be receiving the CTC payments they are eligible for. Though this represents a relatively small percentage of eligible children, it’s likely that many of those not receiving the CTC payments they are entitled to are among those who would benefit the most from it.
Despite these challenges, there are encouraging signs that CTC payments are making a meaningful difference in the lives of households who are receiving them. According to the Census Bureau, food insecurity dropped by 24 percent among households with children after the distribution of the first child tax credit payment. In September, the Social Policy Institute at the University of Washington in St. Louis released a report finding that the vast majority of parents preferred the monthly payments, and that the most common uses of CTC payments were saving for emergencies and spending on household essentials. More recently, the JPMorgan Chase Institute released data indicating that CTC payments were helping families with children maintain small cash buffers as the economic recovery from the Covid-19 crisis began. The Financial Health Network’s own transactional data from the Financial Health Pulse also indicate that CTC payments are helping households meet critical financial health needs by supporting spending on food and healthcare.
In this context, the Financial Health Network believes it is critical to ensure that implementation and payment delivery challenges are not an obstacle to providing such crucial relief to households. The Covid-19 Crisis made clear that our nation’s financial health is only as strong as our financial health infrastructure. By carefully investigating and documenting the impact of implementation challenges associated with the Child Tax Credit, this effort hopes to shed further light on the importance of the fast and efficient distribution of economic relief.
The views expressed in this blog post and the forthcoming report are those of the Financial Health Network and do not necessarily represent those of our funders or partners.
