Stimulus Update: 3.7 Million Children Plunged Into Poverty Without Boosted Child Tax Credit

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KEY POINTS

  • The enhanced Child Tax Credit pulled millions of children out of poverty in 2021.
  • In its absence, 3.7 million children have fallen into poverty this year.


The loss of those monthly payments has been devastating for some families.

Last year, many families received a financial lifeline in the form of the boosted Child Tax Credit. Not only did the maximum value of the credit rise from $2,000 in 2020 to $3,600 in 2021 for children under 6 and $3,000 for children aged 6 to 17, but the credit changed to become fully refundable. As a result, families with no tax liability could still receive their money in full.

Just as importantly, half of the boosted Child Tax Credit was made available to recipients in the form of monthly installments. Those payments began hitting bank accounts in July and continued through December.

President Biden wrote legislation into his Build Back Better plan that was supposed to keep the enhanced Child Tax Credit around in 2022 -- monthly payments and all. But that bill has stalled in the Senate and seems unlikely to pass. As a result, no monthly installments have gone out this year. And that's already had a major impact on millions of children.

Poverty rates are up

Between late 2021 and January of 2022, an estimated 3.7 million children fell below the poverty line in the absence of the boosted Child Tax Credit, according to recent data from Columbia University. Black and Latino children experienced the highest poverty rate increases.

Given that 91% of low-income families used their monthly Child Tax Credit payments to cover basic needs, according to an analysis of U.S. Census Bureau data by the Center on Budget and Policy Priorities, that's not shocking. But it doesn't change the fact that higher poverty rates are a big problem.

Now the good news is that child poverty rates tend to fall during tax season. That's because many families get a tax refund during that time. As such, we could see lower poverty numbers in the coming months as more people file their returns and get money back from the IRS. But let's also remember that this year, tax refunds may be smaller across the board for families with children due to them having received half of their Child Tax Credit in 2021.

2022 could be a dire year for poverty rates

Although the boosted Child Tax Credit could still get a revival for 2022, as of now, those monthly payments are off the table. And that could have catastrophic results at a time when so many families are struggling with higher living costs in the face of rampant inflation. In fact, researchers say that the child poverty rate could be persistently high after April and through the rest of 2022 if the boosted Child Tax Credit doesn't come back.

To be clear, if lawmakers don't take action, the Child Tax Credit won't go away. Rather, it will revert to its former maximum $2,000 value.

But in that case, it won't be fully refundable and it also won't go out in the form of monthly installments. And the mere fact of having to wait to collect that money could put lots of families -- and the children they support -- in a financially precarious state.

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