Study: Low-income NJ families were least likely to claim expanded child tax credit in 2021
By SOPHIE NIETO-MUNOZ
New Jersey Monitor
The expanded child tax credit was a lifeline to low-income families, who spent the majority of the benefit on necessities like food, clothing, rent, and utilities, according to a new report by the Rutgers Center for Women and Work and the New Jersey State Policy Lab.
And though nearly every household with children qualified for some form of the credit — expanded in 2021 as part of the American Rescue Plan — nearly half of eligible parents in the Garden State didn’t receive advance payments the expansion made available, the report states.
The study, released Wednesday, says the least likely to have received the payments are families with low incomes. Nearly 60% of respondents with incomes of less than $25,000 reported they didn’t receive them.
As the tax filing deadline of April 18 approaches, experts fear low-income families will leave that money on the table. Debra Lancaster, executive director of the Rutgers Center for Women and Work and co-author of the report, called it “worrisome” that low-income parents didn’t receive the much-needed payments.
“The child tax credit lifts families out of poverty,” Lancaster said in a statement. “What this research shows is that low-income households in New Jersey are using the money for basic needs like groceries and paying the bills. That’s significant because it means the policy is doing what it’s supposed to do.”
The child tax credit increased from $2,000 per child in 2020 to $3,600 in 2021 for children under age 6. Parents of children ages 6 to 17 saw the payments go up from $2,000 to $3,000. Parents received a credit of $250 to $300 monthly per child, depending on their income.
And for the first time, parents could receive the credit as monthly advance payments instead of waiting until tax time to benefit.
More than 1 million New Jersey families benefited from the expansion.
The expanded credit expired in December and was not renewed by Congress, despite calls from President Biden to extend it. A Columbia University study showed 3.7 million children plunged back into poverty in January without the monthly benefit.
How was the money spent?
The Rutgers study highlights the ways households across different incomes and races used the child tax credit. Among all incomes, races, ages, and family sizes, food was the most common use for the payments.
Some households also used them to save money. More than half of households earning less than $50,000 annually used most of the payments to pay off debt. Low-income households were much more likely to spend on food, utilities, and rent, while households with higher incomes invested the money, paid down debts, or paid their mortgage.
One in four parents with a child under 5 years old spent at least a portion of the money on child care, the report says. Sarah Small, a Rutgers Center for Women and Work researcher and co-author of the report, said that “raises a red flag.”
“Without financial support or vast improvements in the state’s child care infrastructure, many of these families will continue to struggle,” Small said.
Ultimately, the report found the child tax credit helped many families stay in their homes, pay for child care, and purchase food. The report’s authors are urging lawmakers across the state and country to consider implementing the credit on a more regular basis, saying it alleviates “the burden in obtaining benefits, particularly those already facing economic challenges.”
There are still hundreds of thousands of families strapped for cash who may miss out on the tax credit. This might be because many households with very low income don’t file taxes, and the receipt of a 2019 or 2020 filing — or a claim for economic impact through the IRS’s non-filer tool — is required, the report states.
The low number of families claiming the monthly advance payments could also be attributed to some parents opting for a lump sum in 2022, or limited awareness that the expanded program exists, particularly among low-income New Jerseyans.
There’s still time to file a tax return to claim the full child tax credit. Organizations like New Jersey Citizen Action and the United Way of Northern New Jersey offer free tax preparation for some filers. The IRS website shows a list of free tax prep sites, and the state’s 211 website also offers some programs.
“The child tax credit helped lift countless New Jersey families and their children out of poverty, but this program only works when families receive their payments,” said Dena Mottola Jaborska, executive director of New Jersey Citizen Action, adding that “putting hands into the hands of working families has been one of the best weapons against economic insecurity.”