Over the past 50 years, the child poverty rate in the United States has fallen slowly, decreasing by only a quarter since 1967. In just the next year, we have the chance to nearly double that progress.
The American Rescue Plan, passed in March, dramatically expands the existing Child Tax Credit. Scholars project the expansion could cut child poverty by 45 percent, reducing poverty among Black children by even more. The new Child Tax Credit expands the size of the existing credit, makes the credit fully refundable (so households with no tax burden receive the credit as a payment), is paid out to families on a monthly basis starting in July of this year, and is accessible to those with low or no income, who largely missed out on the previous credit. In other words, the expanded CTC moves the U.S. closer to the kind of universal child benefit that exists in many wealthy, Western nations, where child poverty is far lower than in the U.S.
But in order to realize the anti-poverty potential of this measure, we need to ensure all eligible families receive their monthly payments. As would be expected with the roll out of a new tax credit, questions have arisen around eligibility and receipt of the credit, particularly for households with low-incomes who may be receiving the credit for the first time. To better understand these questions, Poverty Solutions, a research initiative at the University of Michigan, and Propel, a software company that helps low-income households connect to food assistance, surveyed over 10,000 families about their understanding of the expanded CTC. What we learned is that with the right user-focused tools, we can ensure all families receive the support they so desperately need.
First, 30 percent of the families we surveyed do not file taxes, likely because their incomes are too low. This presents an issue because in order for the IRS to distribute CTC payments to a household, they need to know the household’s income, number and ages of children, and where they should send the money. Thus far, the message to all families with low incomes has been to file your taxes. However, for families unfamiliar with the process, this is easier said than done. There is no simple tax-filing option for families with little income, and many cannot access free tax-prep help. Many survey respondents with little to no income could not understand why they had to file taxes or thought they weren’t allowed to, and they wanted to know how they could “sign up” for the expanded Child Tax Credit. These findings suggest that outreach efforts alone may have limited utility.
Faced with this scenario — in which those who stand to benefit the most from the expanded credit may face the greatest obstacles to receiving it — the Biden administration should work with the IRS to create a user-friendly, simplified tax filing portal that allows users to easily enter the information the IRS needs to make CTC payments. The American Rescue Plan requires the IRS to create a portal that enables tax-filing households to change household information relevant to the size of their credit, such as the birth of a child. We’re recommending this portal also include a way for traditionally non-filing households to “sign up” for advance CTC payments by entering essential information that would be required on a simple tax return.
Getting these kinds of details right will be critical for this measure to deliver on its transformational potential. And the potential impact truly is transformational. Respondents to our survey wrote that receiving these monthly payments would mean they would no longer have to skip meals or essential medications just to ensure their children had enough to eat. They said they would be able to pay all their bills, instead of racking up debt and living in fear that the lights would go out. They said they might be able to save a bit of money for the first time.
After more than a year in which American families have experienced job loss, isolation, and countless tragedies, the expanded Child Tax Credit holds the opportunity to offer these families critical support, a sense of hope and dignity. If the Biden administration, Congress, and the IRS can work to build user-focused tools that allow all households to communicate with the IRS, we can turn the promise of the expanded Child Tax Credit into a reality and improve the well-being of millions of American households.
Patrick Cooney is assistant director of economic mobility at Poverty Solutions at U-M. Stacy Taylor is head of partnerships and policy at Propel.