Child tax credit brings extra cash and some sanity to family life

What would your family do with an extra $450 or more a month? 

Many families have been seeing an influx of cash each month ever since July. And the next advance payment of the child tax credit is set to arrive Nov. 15 with another one around the corner on Dec. 15. 

On average, qualifying families in Michigan saw an extra $444 in October alone, according to data from the U.S. Treasury Department and the Internal Revenue Service. The payouts can run higher for those with more children who qualify. About 1.02 million payments were issued to families in Michigan. 

So far, the advance payments for the child tax credit have put $1.8 billion in the pockets of Michigan families from July through October. 

How are parents spending extra cash? 

Families across the country have used this money to catch up after falling behind on bills; cover the family's monthly car lease payment and cell phone bill; pay health insurance premiums; pay for costs associated with sports, including travel hockey; set aside a little extra savings toward college; and deal with everyday school expenses, according to parents I interviewed for this column. 

The child tax credit was temporarily expanded in March as part of pandemic-related relief. The monthly payments are set to end in December unless Congress extends the program. 

President Joe Biden's Build Back Better package released Oct. 28 calls for extending the advance monthly payments for one year into 2022.

Nationwide, 36 million advance payments were issued in October for a total of nearly $15.5 billion in the month. If you add up all the payments from July through October, families received $61 billion nationwide.

The average October payment across the country amounted to around $430. 

Some states had higher averages with $515 in Utah, $489 in Idaho, $481 in South Dakota, $472 in Alaska and $469 in Nebraska. 

The price hikes, sports fees and emergencies add up

Families say the extra cash is a real lifesaver as they're paying considerably more for food, gas and utility bills. Raising children has never been cheap, and it's even worse for many families now. 

Anita Cobb, 35, has three children — Isaiah Cobb, who will be 15 in late November; daughter Amaria Cobb, 13, and DaShaun Davis, 13, who is known as DJ. 

The St. Johns mother works two jobs — one runs 40-plus hours a week as an aviation planner for an architecture and engineering firm out of Wisconsin for airport-related projects and another involves picking up part-time hours in the paint department at a Menards home improvement store in Lansing, which is a 25-mile, one-way commute.

"I need two jobs," she told me.

By working two jobs, Cobb makes less than $65,000 a year. Her fiancé works two jobs in janitorial services. They're saving toward buying a house and a new car.

At one point, she was working a grueling 65 hours a week to make a go of it, picking up 25 hours a week for that part-time job before the pandemic hit. It was just too much on top of raising children. 

The child tax credit amounts to an extra $750 a month for her family of three children.

Most families are automatically receiving monthly payments of up to $300 for children through age 5 or up to $250 each for older children without having to take any action. How much one receives depends on one's income. 

"It's helped me tremendously," Cobb said, adding that she'd very much like to see the expanded child tax credit program extended. 

"I'm spending more money on gas. I'm spending more on food." 

She noted that her energy bill has gone up to the point where she's paid $250 to $300 a month for her gas and electric bill lately. 

The family has used the extra money from the child tax credit to cover all sorts of bills — including what's expected to add up to $525 in fees this academic year for Isaiah to participate in high school sports, roughly $400 for Amaria's expenses as a cheerleader and a basketball player, and less than $100 for DaShaun's expenses for band. 

Amaria needed braces and that added up to a $250 down payment plus $180 a month. The total expense was $7,000. 

Cobb said participating in outside activities, such as sports, is important for keeping children focused, building friendships, learning skills to work as a team and setting a goal toward going to college. She wants her children to do well and be happy. 

She says her family doesn't qualify for other assistance or reduced participation fees so the child tax credit is important to families on the bubble like hers. She's now working fewer hours and that's helped her spend more time with her children and has cut down on some stress. 

She's now down to about six hours a week for her part-time job; and she's still working 40 or more serving as a consultant to airports, performing environmental planning and managing her company’s internal diversity and inclusion initiatives.

The child tax credit money also helped the family when a quick string of emergencies cropped up and quickly cut into savings. Isaiah was injured in football. Cobb needed some surgery. And there was an incident with the family's only car.

"I hit a deer," said Cobb, who lives in the rural area in Michigan north of Lansing. 

The latest string of sudden unexpected expenses, she said, amounted to the "perfect storm." But the extra money from the credit helped the family stay on course. 

More:Monday is a key day for making changes regarding child tax credit

More:You may be surprised by cuts in October child tax credit: What we know

Where extra money goes

Not surprisingly, families have plenty of uses for that extra cash, according to new results from the U.S. Census Bureau’s experimental Household Pulse Survey. They include: : 

Paying off debt. About 40% of households that received the first three child tax credit checks from July through September said they mostly used them to pay off debt, according to the household survey.

Spending the extra cash. About one-third in the latest survey said they were "mostly spending" the money. 

Buying school stuff. Those who spent the money often used it toward more than one thing, according to the survey. Yet money from early checks more frequently went toward some spending for school expenses near the end of August and into early September, as the school year began across the country.

By late September, the report indicated the money from the credit was less likely to be spent on school-related expenses.

Juggling the bills. From late July through September, roughly half of those families receiving the advance payments for the credit reported spending at least part of it on food. About 40% said they used the money for their rent, mortgage or utility bills. 

Going toward child care. About 10% of households used the child tax credit for child care. In early September, the percentage was around 12%. 

Families that only had young children were more likely to spend the money on child care — with 20% to 25% of families directing the money toward child care at various points through September. 

The data was collected in the household survey from July 21 to Sept. 27. The survey was sent to more than 1 million adults in households every two weeks. The Household Pulse Survey offers a quick measure of how the coronavirus pandemic is touching households from a social and economic perspective.

Low-income families buy basics

Families with low incomes tend to use the advance money toward the basics.

About 59% of those receiving money spent some on food, when reviewing data among households with incomes below $35,000. And about 19% in that group used money toward making a payment on a car, according to a review of the census household survey by the Center on Budget and Policy Priorities. 

Poverty Solutions at the University of Michigan worked in partnership with Propel to survey low-income parents and found that most of those surveyed needed the money to make ends meet. Many people in this group have low incomes with the highest annual income being around $25,000. The survey group either had received food assistance benefits or are currently receiving food assistance. 

"Really, they're telling us they're paying their bills," said Natasha Pilkauskas, co-author of the policy brief “Receipt and Usage of Child Tax Credit Payments among Low-Income Families: What We Know” and associate professor of public policy at U-M’s Gerald R. Ford School of Public Policy. 

"For this lower-income sample, they're using it to make ends meet." 

About 75% in this survey reported using the money for basic living expenses like paying bills. And 9% reported using the money for paying rent or the mortgage, while 4% paid off debt and 7% bought food. 

In addition, the Poverty Solutions survey indicated that 42% of this group of low-income families also reported using the money for child-related expenses, like school supplies, children’s clothing and child care.

Pilkauskas said that in recent surveys families mentioned buying winter clothing and a very small group, around 1%, said they also were saving some money toward buying holiday gifts. 

The tax credit itself isn't targeted to low-income families. The more money that some families make already, she said, the more likely that they are using some money beyond just paying for the basics.

You'd qualify for the entire amount of the larger credit if you are single and your income is less than $75,000. Or, if you are single and file taxes as a head of household, your income must be under $112,500 in 2021 to qualify for the full benefit.

If married and filing a joint return, you'd qualify for the full benefit if your combined income is under $150,000 in 2021. 

The expanded child tax credit is viewed as an important anti-poverty tool. It's estimated that the first two monthly payments cut the child poverty rate by nearly 30%, keeping 3.5 million children out of poverty, according to work by researchers from Columbia University’s Center on Poverty and Social Policy.

The Poverty Solutions survey also noted that 16% of low-income respondents reported the initial child tax credit payment did not provide enough help. 

The survey involved those who use the Providers free mobile app that helps more than 5 million families manage their Supplemental Nutrition Assistance Program benefits.

The survey was conducted between Sept. 1 and Sept. 15 and included the views of more 3,000 U.S. parents living with children under 18  who use the app. 

To be sure, many parents have experienced glitches in receiving the credit. Some may not be able to spend the money as they need to now because they've not yet received what they're eligible to get. 

This year, the IRS is making advance payments of half the total credit amount over six months in 2021. The other half is to be claimed on the 2021 income tax return when the return is filed next year. 

Some issues are being experienced and addressed in the IRS rollout. But low-income families also face other challenges.

Due to low earnings, the U-M report noted that many low-income households do not traditionally file taxes. And that's the main way families are enrolled to receive the credit.

Much effort has been made to offer a non-filer tool at IRS.gov to help these families and offer assistance in getting those who aren't required to file a tax return to do so to claim the credit and other possible tax breaks. Continued outreach and simplification are necessary. 

Pilkauskas noted that the U-M research also indicates that Spanish-speaking families in this group more frequently reported not receiving the July or August payments. 

Pilkauskas said she feels strongly that the credit should be extended to help families. This type of a credit has been extremely beneficial in Canada, she said, to help with the cost of raising children under the age of 18. 

Some critics may question if parents would be less likely to work if they're receiving a child tax credit each month.

But Pilkauskas said there is no evidence of that being the case. The credit overall is minimal, she said. It might in the future help some parents who are working multiple jobs, on top of a full-time job, to cut back some hours. 

Not having to work 55 hours or 60 hours a week, though, could help more families be less stressed and spend more time with their children. 

The bills don't stop. But sometimes, parents can only do so much. 

ContactSusan Tompor via stompor@freepress.com. Follow her on Twitter@tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.