For many working parents across the country, filing taxes can result in thousands of dollars from refundable credits provided by federal, some states, and even some local governments. These funds, often the largest single payment they receive in a year, help parents meet their families’ financial needs from paying bills, buying something for their kids, to saving for their child’s future. Local leaders have a role to play in helping their residents understand their eligibility for these credits, where to go to file their taxes for free, and how to connect with safe banking products.
The recently passed American Rescue Plan (ARP) Act changes one important tax credit for families this year. Previously, the Child Tax Credit (CTC) provided an annual lump sum payment of $2,000 per child and with the passage of the ARP Act, the CTC will be worth up to $3,600 for children under 6 and $3,000 for children up to 17. The credit will be phased out for individual parents earning more than $75,000 and couples making above $150,000. Additionally, the ARP Act allows those that do not have any earned income to access the credit. The ARP Act offers parents the option of receiving half of their CTC in advance of filing their taxes in 2022. This means that parents could expect to start receiving monthly payments of up to $300 per child starting in July. The Internal Revenue Service (IRS) will set up an online portal to allow parents to opt-out of the advance payments or provide information that would be relevant to modifying the amount they receive.
For perhaps the first time we have already seen what moving from one-time lump sum payment to more regular payments can do for families from a periodic payment pilot that happened in the City of Chicago and universal basic income experiment – Stockton Economic Empowerment Demonstration (SEED) in Stockton, CA. Research from the periodic payment pilot in Chicago suggests that moving from a lump sum to payments more evenly spread out had positive impacts helping families became more food secure, increased their capacity to afford child care, decreased their likelihood of missing rent or utility payments, and lowered financial stress.
Previously, the Child Tax Credit (CTC) provided an annual lump sum payment of $2,000 per child and with the passage of the ARP Act, the CTC will be worth up to $3,600 for children under 6 and $3,000 for children up to 17.
Additionally, the SEED experiment decreased income volatility, allowed participants to spend more on essentials like food, doubled their capacity to pay unexpected bills and allowed them the financial flexibility to help their family and community financially. The experiment also found that participants continued to work, and 12% of participants increased their employment from part-time to full-time. Over the last year, excitement and interest in UBI has led to further expansion of the planning and implementation of new pilots throughout the county.
Local leaders can play a crucial information-sharing role in the roll-out of the expanded Child Tax Credit. Just like any new federal program, residents will need to be made aware of important details of the credit like eligibility, what actions they might need to take to get the funds, when the funds will be coming, where they will be deposited, and that the expansion, in its current form, will go away next year.
Now is the time for cities to invest in partnerships with financial institutions to develop Bank On programs that expand safe and affordable financial products like bank accounts with low or no fees and overdraft protection, so residents keep more of these funds.
When parents hear from city leaders that support is on the way through periodic payments, they are better able to plan for their household’s needs. Helping your residents navigate and receive this expanded benefit will create more financially stable families and help your city stay financially stable as well.
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For more information on the child tax credit, how cities are using tax time to help their residents and for city programs to improve residents’ economic mobility, join the Economic Mobility Peer Network.