The Advance Child Tax Credit: An Opportunity for HUD-Assisted Families with Children

The Advance Child Tax Credit: An Opportunity for HUD-Assisted Families with Children

In this article, Veronica Helms Garrison and Janet Li discuss the Advance Child Tax Credit.

The American Rescue Plan (ARP) Act of 2021, also called the COVID-19 Stimulus Package, is a nearly $2 trillion economic stimulus bill passed by the 117th United States Congress in March 2021. The ARP promotes recovery from the economic and health impacts associated with the COVID-19 pandemic.

One provision of the ARP expanded the Child Tax Credit to provide relief to working families who are raising children. Previously, families were eligible for $2,000 for each child aged 16 and under; for the 2021 tax year, families are eligible to receive $3,000 per child aged 6 to 17 and $3,600 per child under age 6. In addition, the entire Child Tax Credit is refundable, meaning that a family owing no federal income taxes can receive the full credit as a tax refund. Previously, the refundable portion was capped at $1,400 per child.

Advance Child Tax Credit Payments

The ARP also made important changes to the Child Tax Credit that will help many families get advance payments of the credit. The Internal Revenue Service (IRS) will pay families half the total amount of eligible tax credits in advance in six monthly cash payments from July to December 2021. Families can claim the other half of the benefit when they file their 2021 income taxes. A qualifying family will receive $300 per month for each child aged 5 or younger and $250 per month for each child aged 6 to 17. Families will receive payments through direct deposit or mailed check. These advance payments of the Child Tax Credit will allow families to use this cash benefit immediately for rent, food, medicine, childcare, and other expenses.

Starting on July 15, 2021, many families eligible for the Child Tax Credit started receiving automatic monthly payments. The IRS uses 2019 and 2020 tax returns to determine whether a family qualifies for the advance payments. Eligible families who did not file taxes in 2019 or 2020 must sign up to receive payments. In July 2021, the IRS and the U.S. Department of the Treasury sent more than $15 billion to families that qualify for the Advance Child Tax Credit, an action that benefited approximately 60 million U.S. children. The IRS will disburse the next advance payment on September 15, 2021.

Eligibility

To qualify for the Child Tax Credit, families must earn an adjusted gross income that does not exceed predetermined income limits. All working families will receive the full credit if they earn less than $150,000 as a married couple or $112,500 as a family headed by a single parent.

The benefit size gradually diminishes for families with higher incomes; for single heads of households earning more than $112,500 per year or married couples earning more than $150,000 per year, payments will phase out by $50 for every $1,000 of annual income beyond those threshold amounts. The Child Tax Credit does not limit the number of children within a family who are eligible to receive the credit. Additional eligibility information is available on the IRS website.

Impact for HUD-Assisted Households

The ARP expansion of the Child Tax Credit will directly impact millions of families receiving rental assistance from HUD. Among the nearly 4.6 million HUD-assisted households in 2020, approximately 1.6 million, or 34 percent, are families with children. Ninety-one percent of these HUD-assisted families with children are single-parent households, and 62 percent have two or more children. Overall, approximately 3.3 million children live in HUD-assisted households, including around 897,000 children under the age of 6.

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Based on the income qualifications, most HUD-assisted families are eligible for the full Advance Child Tax Credit. In 2020, HUD-assisted households with children had a mean annual income of approximately $17,500. Less than 10 percent of HUD-assisted households with children earned more than $36,000 annually, and less than 5 percent earned more than $44,000. Even when looking at the highest earners, less than 1 percent of HUD-assisted families with children had an annual total income greater than $66,000, a figure well below the lowest income threshold category for the full Child Tax Credit. Based on these estimates, approximately 1.6 million HUD-assisted families, including 3.3 million children, are eligible for the full Advance Child Tax Credit.

The average monthly income for HUD-assisted families with children is approximately $1,460, or $8,760 over 6 months. On average, Advance Child Tax Credit payments will increase monthly income by $550 among these families. In other words, Advance Child Tax Credit payments will increase the average HUD-assisted family’s monthly income by nearly 38 percent. Across the 6-month disbursement payment period, Advance Child Tax Credit payments totaling an average of approximately $3,300 per household would account for approximately 27.5 percent of a family’s total income over that period.

Automatic Disbursements

Although most HUD-assisted families with children qualify for the Advance Child Tax Credit, those who did not file taxes in 2019 or 2020 will not receive payments automatically; they must first sign up so that the IRS can determine their eligibility. How many HUD-assisted families typically file taxes? For 39.6 percent of HUD-assisted families with children, wages are the main source of income. Single heads of household earning $18,650 or more in gross income in 2020 would be required to file a tax return, meaning that, for those households, taxes were likely filed and advance credit payments would be automatic. However, approximately 62 percent of HUD-assisted families with children reported annual incomes less than $18,650.

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Households earning low or no annual wages should still file a tax return to access the Earned Income Tax Credit (EITC), which works like a negative income tax (that is, a tax refund) for those eligible. More than 95 percent of HUD-assisted families with children qualify for the EITC based on the eligibility criteria. For the 2020 tax year, single-parent households are eligible for the EITC if they earned up to $41,756 in adjusted gross income and have one child, up to $47,440 if they have two children, and up to $50,594 if they have three or more children.

Key Considerations for HUD-Assisted Families

HUD-assisted families face unique challenges. Researchers and policymakers should consider how the following aspects of Advance Child Tax Credit payments affect HUD-assisted households with children.

• Impact on Government Benefits. Advance Child Tax Credit payments will not affect any government benefits already received, including federal housing assistance. These payments do not count as income when determining eligibility for benefits or assistance under any federal program, or any state or local program financed in whole or in part with federal funds. Advance Child Tax Credit payments cannot be counted as a financial resource for the purposes of determining eligibility for at least 12 months after receipt.
• Households With No Income. Even families with no income are eligible to receive Advance Child Tax Credit payments.
• Households That Did Not File Taxes in 2020. As with the Economic Impact Payments that were disbursed earlier in the COVID-19 pandemic, households that did not file taxes in 2020 are still encouraged to seek the Advance Child Tax Credit. Families that did not file taxes in 2019 or 2020 should use the IRS Non-filer Sign-Up Tool to claim their credit.
• Home Location. Families do not need a permanent address to receive payments. A household’s “main home” can be anywhere the family regularly lives, including a house, apartment, mobile home, shelter, or temporary lodging, and its location does not need to remain the same throughout the taxable year. A family experiencing homelessness may list the address of a friend; relative; or trusted service provider, such as a shelter, drop-in day center, or transitional housing program.
• Late or Missing Payments. Households requesting their Advance Child Tax Credit by check may experience mailing delays or missing payments. Concerned households should review the IRS website for information about missing payments.
• Avoiding Scams. The IRS urges families to be aware of scam artists trying to use Advance Child Tax Credit payments as a cover for schemes to steal personal information and money. The IRS never initiates contact by email, text messages, or social media channels to request personal or financial information. See Report Phishing and Online Scams for additional information.

Resources for HUD-Assisted Families
Public housing agencies, landlords, property managers, employers, community groups, nonprofits, associations, social workers, healthcare providers, and other stakeholders with connections to HUD-assisted families should be aware of the following resources.

• IRS Toolkits. In June 2021, the IRS introduced several online tools and portals. The first portal is for people not normally required to file an income tax return, including low-income families. The Advance Child Tax Credit Eligibility Assistant tool (available in English and Spanish) helps families quickly determine whether they qualify for the credit. The Child Tax Credit Update Portal allows families to check eligibility, manage payments, and decline advance payments (if they prefer to receive the credit when they file their 2021 taxes).
• 2020 Economic Impact Payments Toolkit. This toolkit increases awareness about the previous three Economic Impact Payments (also known as “stimulus payments” or “stimulus checks”) approved under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 to low-income individuals who typically do not file income tax returns. This toolkit serves as a guide to help HUD grantees reach all eligible Americans regardless of their income or tax filing status.

Community stakeholders interested in raising awareness of the Advance Child Tax Credit should also look for additional information from the IRS. The IRS plans to release materials and information in the coming weeks that can be easily shared through social media, email, and other methods.