Boosted Child Tax Credit May Be Getting More Parents Back to Work

A father walking hand-in-hand with his young daughter wearing a backpack.

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Those extra payments may be making it more feasible for parents to return to the labor force.

Prior to 2021, the Child Tax Credit was worth up to $2,000 per child, only $1,400 of which was refundable. And to receive the credit, parents had to file a tax return and wait for their money to be paid in the form of a refund.

This year, the Child Tax Credit has gotten a huge, albeit temporary, boost, thanks to the American Rescue Plan, the massive COVID-19 relief bill signed into law in mid-March. For the 2021 tax year, the credit is now worth up to $3,600 for children under the age of 6 and up to $3,000 for those aged 6 to 17. And the credit is now fully refundable, so if a family owes the IRS no tax, they can still collect it in full.

Just as importantly, this year, half of the Child Tax Credit is being paid out in monthly installments, the first of which went out in July and the last of which is set to hit bank accounts in December. The remainder of the credit will be paid in 2022.

So far, the boosted credit has helped over 3 million families experience less food insecurity, and it's helped countless households shore up their finances. And now, new data reveals that the enhanced credit may also be helping more parents get back to work.

Earning a paycheck once again

Many parents were forced to scale back their hours at work or even put their careers on hold completely during the pandemic. For much of the outbreak, schools haven't been open for full-time in-person learning, and in the absence of having daytime childcare, many parents have had no choice but to stay home and look after their kids.

Now, researchers from Washington University of St. Louis, Appalachian State, UNC-Greensboro, the Urban Institute, and Humanity Forward have found that 94% of parents plan to continue working or even take on more hours at work thanks to the money they're getting from the boosted credit. Only a little over 6% of those surveyed said the credit would prompt them to work less or change jobs.

Given how much childcare costs these days, this makes a lot of sense. For many parents, it's not economically feasible to work full-time because too much of their income would go toward childcare expenses. This especially holds true for lower earners.

While childcare costs have risen steadily in recent years, the minimum wage has held steady at $7.25 an hour since 2009. So it's easy to see why some parents might need extra cash coming their way just to be able to hold down a job.

A temporary measure that could become permanent

The fact that the boosted Child Tax Credit may be driving more parents back to work could fuel the argument to keep the enhanced version in place beyond 2021. In fact, some lawmakers are already fighting to make the expanded version permanent, citing the fact that doing so could substantially reduce child poverty rates. And now those in favor of keeping the boosted credit in place may be able to point to an uptick in workforce participation as another reason to go that route.

That said, there's some debate among lawmakers as to whether parents should be required to work in order to receive the Child Tax Credit. Senator Joe Manchin, for example, has argued that parents should be required to have earned income to remain eligible for it.

But regardless of how that debate plays out, there's a clear benefit to keeping the boosted credit in place for future tax years. Not only might it help more parents increase their hours at work, but it could also fuel more entrepreneurship. And that could, in turn, lead to more jobs and a faster recovery from the pandemic.

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