Personal Finance

Child tax credit lifted 3 million kids from poverty in July

The first installment of the child tax credit lifted 3 million kids out of poverty in July, according to a Columbia University study.

That reduction represented a 25% cut in the monthly child poverty rate, to 11.9% from 15.8%, according to the analysis published Friday.

“This is huge for low-income families,” Zachary Parolin, a researcher at the university’s Center on Poverty and Social Policy and a report co-author, said of recent changes to the child tax credit.

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Child poverty is a measure of the share of kids living in households below the poverty line.

The Columbia analysis uses a monthly poverty measure that differs from the U.S. official metric, which is published once a year, to determine the real-time effect of pandemic-era aid programs.

The average two-parent, two-child family would be considered poor if their income is less than roughly $2,300 per month, per the Columbia measure.

Changes to the child tax credit

The American Rescue Plan raised the maximum child tax credit to $3,000 or $3,600 per kid, depending on age, which is up from $2,000.

It also offered the tax break to more low-income households and turned the benefit into a monthly income stream. Parents can get up to $250 or $300 a month per child (again, depending on age).

The first installment of payments, issued July 15, reached families with more than 59 million children, according to the U.S. Department of the Treasury. That’s about 80% of all kids in the U.S., according to the Columbia analysis.

Poverty reduction was spread fairly evenly, falling about 20% to 25% across all major racial and ethnic groups. However, Black and Latino children still face twice the rate of monthly poverty relative to white children, according to the Columbia report.

Further reduction?

It’s likely the number of kids in poor households will fall further as more households become aware of the benefit, Parolin said.

The IRS sent payments automatically in July to households for whom it had relevant information, such as annual household income, which determines eligibility and amount of one’s child tax credit.

That data came from recent tax returns, as well as a portal used by Americans who don’t typically file a tax return in order to access pandemic stimulus checks.

The Biden administration also recently opened a child-tax-credit portal for households to enter or update their data. It is reaching out to low-income parents who may not file tax returns to raise awareness of the portal and boost distribution of the monthly credit.

“The potential for the benefit is huge, but only if these children and their families are able to access [it],” Parolin said.

The Biden administration issued a payment to households with 61 million kids in August — about 1.6 million more than in July, the Treasury announced earlier this month. (They received payments for both August and the one missed in July.)

It’s unclear how many American children live in households that qualify for a monthly credit. Parolin estimates more than 2 million or 3 million children haven’t yet gotten a payment but live in households eligible for the benefit.

The American Rescue Plan offered the monthly payments temporarily. They won’t be available next year unless extended by Congress.

Democrats aim to pass legislation this year to continue the payments, part of a broader measure to expand the social safety net for low- and middle-income families. The House passed a $3.5 trillion budget framework on Tuesday, passed by the Senate earlier this month, that paves the way for committees to draft formal legislation.

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