Stimulus Update: Boosted Child Tax Credit Was Instrumental in Shoring Up Savings, Data Shows
- The Child Tax Credit's maximum value increased substantially in 2021.
- Data from the Federal Reserve shows that many families were able to save at least some of those payments.
That money put many families in a stronger financial position last year.
When the American Rescue Plan was signed into law in March of 2021, it provided many different forms of relief for the public. Not only did it allow for a round of stimulus checks worth up to $1,400 apiece, but it also boosted the Child Tax Credit and changed the way the credit was paid.
Prior to 2021, the Child Tax Credit maxed out at $2,000 per child. Last year, its maximum value increased to $3,600 for children under the age of 6 and $3,000 for children aged 6 to 17.
The credit also became fully refundable, meaning a family could collect it in full even with a $0 tax liability. Plus, half of the credit was paid in monthly installments that hit bank accounts from July through December.
President Biden initially sought to keep the boosted Child Tax Credit in place for 2022. But the spending bill that allowed for that failed to gain traction in the Senate.
Meanwhile, new data from the Federal Reserve reveals that the boosted Child Tax Credit was instrumental in helping families build savings. And with the enhanced version off the table, savings could now stagnate or quickly get depleted, especially in the wake of rampant inflation.
A big help for families
The Federal Reserve found that parents who received monthly Child Tax Credits last year most frequently saved that money, bought things for their children, or used the cash to cover necessities. But interestingly, saving was the most common use of those Child Tax Credit payments, with 43% of recipients saying they were able to bank at least a portion of that money.
Not only did the boosted Child Tax Credit help families shore up their savings, but it also helped many pay down debt. In fact, 21% of those who received those monthly payments used at least some of that money to chip away at debt obligations.
What happens next?
It's a really good thing that so many families were able to use their boosted Child Tax Credit payments to put themselves in a better place financially. As we all know, living costs have soared this year, and many people's paychecks can no longer cover their basic expenses -- so having some sort of leftover cushion may be what's preventing more families from racking up debt these days.
The problem, though, is that many families are indeed raiding their savings to make ends meet in the absence of having those monthly Child Tax Credit payments to look forward to now. And once they deplete their savings, they could end up in a very bad situation.
Unfortunately, there are no immediate plans to bring the boosted Child Tax Credit back to life. While some lawmakers are still pushing for it, there's lots of opposition on account of the cost involved.
This means that cash-strapped families may have to make some difficult choices in the coming months, like cutting back on spending or going out and boosting their income with a second job. It's certainly not an ideal situation. But at this point, it's becoming increasingly clear that the boosted Child Tax Credit isn't happening for 2022.
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