Personal Finance

Child tax credit payments will help offset loss of unemployment benefits, end of eviction moratorium for some

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This week, roughly 39 million American families with children will start receiving payments from the 2021 enhanced child tax credit.

It will amount to hundreds of dollars per month for some.

The money will be a huge help to eligible families as they grapple with the end of Covid-era unemployment benefits and protections that helped people stay in their homes, according to an analysis by financial services firm Cowen.

The American Rescue Plan, passed in March, enlarged the existing child tax credit. For 2021, the maximum credit is $3,600 for children younger than age 6 and $3,000 for those between 6 and 17.

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Half the money will be distributed as an advance on 2021 tax credits in six monthly installments. For households getting the full benefit, those payments will be $300 per month for children under the age of 6 and $250 for those between the ages of 6 and 17.

“This is a huge policy change: This is universal basic income for low-middle-income parents,” Cowen analysts wrote in the report. “This expansion is the primary policy that the Administration believes could cut childhood poverty in half.”

Credit may help offset end of jobless pay, eviction ban

Just as the monthly child tax credit payments are starting, other programs that have helped Americans stay afloat during the Covid-19 pandemic are coming to an end.

“The timing of this stimulus is particularly helpful as enhanced unemployment benefits begin to roll off in some (mostly red) states and at the federal level in September,” the analysts wrote.

So far, more than two dozen states have halted federal unemployment programs earlier than the September official end date, meaning that nearly 4 million people will no longer receive the extra $300 per week benefit.

In addition, the CDC’s ban on evictions is set to expire at the end of July, and the coronavirus pandemic mortgage forbearance program will end by Sept. 30. This will put at risk millions more Americans that are either behind on rent or in forbearance on their mortgages.

Those with eligible children will get some relief with the new tax credit. About 40% of households that rent and 35% of those that own have children under the age of 18 in the home, according to the latest available data from the U.S. Census Bureau’s Household Pulse Survey.

Of course, the amount that families will receive every month through the credit may not cover rent or make up for what was coming in through federal unemployment insurance.

For example, an unemployed caregiver would get about $1,200 per month via the federal unemployment insurance program. If that caregiver had two children aged 5 and 10, they’d receive $550 per month through the enhanced child tax credit.

Still, having that money coming in will help.

“If the supports that they were getting through unemployment insurance [and other programs] is waning, than the CTC offers yet another lifeline to help them back on their feet,” said Arohi Pathak, director of policy at the Poverty to Prosperity program at the Center for American Progress.

A boost to consumer spending

For some families, the extra money will be more of a bonus to the budget than a lifeline. This will likely boost consumer spending across many categories, just as the three rounds of stimulus checks did over the last year and a half.

“Evidence shows that incremental Covid stimulus works,” according to Cowen. “Two-year average consumer spend has been resilient in ‘at-home’ categories during the pandemic, despite savings rates nearly tripling, as overall discretionary spending in the U.S. declined an estimated 4% in 2020.”

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