This story is co-published with MLK50: Justice Through Journalism, a nonprofit Memphis newsroom focused on poverty, power and public policy — issues about which Dr. Martin Luther King Jr. cared deeply. Find more stories like this at MLK50.com. Subscribe to their newsletter here.
What would Renita Kelly’s family do with an extra $800 a month?
The question will soon no longer be hypothetical. Starting Thursday, the Kellys will be among the 39 million U.S. families who are eligible for a federal child tax credit of up to $3,600 per child that will be paid directly to them in monthly installments through the end of the year.
Kelly said some of the money will go toward bills, including rent and utilities for the duplex apartment she and her husband Briant rent in the Douglass neighborhood. Their 10-year-old daughter Kaitlyn and 6-year-old son Kolten need clothes and shoes, and Kelly loves the idea of karate or gymnastics classes for them. Plus, the money will help with expenses for 5-month-old Keeon.
“It’s a little bit difficult,” Renita Kelly said of her budgeting process for a family without a steady income. Sometimes she wishes she could do more to keep the kids busy, especially after the turbulence from the pandemic last year. “But you have to choose between buying a pair of shoes and doing this and that,” she said.
Experts said they expect the influx of child tax credit money to dramatically help Black families in Memphis, where the child poverty rate is 40% for Black children and 35% for children overall – the second highest in the nation for large cities. That direct infusion of money will, in turn, boost the local economy, with an initial impact of at least $234 million, said a local economist.
Nationally, the tax credit could nearly halve the child poverty rate, according to the Brookings Institution. The IRS estimates 88% of families with children will receive monthly payments. In Tennessee, it could cut the child poverty rate from nearly 13% to just over 7%. Research shows that children who don’t grow up in poverty have better educational, economic, and health outcomes, among other benefits.
It’s a step toward guaranteed income, experts have said, something Dr. Martin Luther King Jr. called for in his final book, Where Do We Go From Here: Chaos or Community?
More money for more families
The American Rescue Plan makes three main changes to the existing child tax credit:
- Expands who can receive the credit, now including children up to age 17. Previously, only children below 17 were eligible.
- Changes the way parents and guardians qualify for the tax credit, making it available to them regardless of whether they owe taxes. Under the old tax credit formula, some households with very low incomes didn’t qualify for the maximum refund.
- Increases the amount of money per child as much as $1,600.
The expanded qualification criteria means more families will be eligible for more money now that the maximum credit can be received without having to owe taxes, according to a Congressional Research Service report. It found that before the expansion, around one in five taxpayers with a qualifying child had incomes too low for them to receive the maximum credit amount.
The refund has jumped from $2,000 for all children to $3,600 for children under 6 and $3,000 for children between 6 and 17.
All families below an income threshold of $240,000 for single filers or $440,000 for joint filers will get some credit. To get the maximum credit, single filers must make less than $75,000, head of household filers less than $112,500 and joint filers less than $150,00, according to the IRS.
Payments will be made monthly between July 15 and the end of the year unless a family opts for a lump sum on next year’s tax return. After December 31st, the remainder of the payments from the first six months of 2021 will be paid out in next April’s tax returns.
That means Kelly’s family is set to receive $800 a month – $250 each for Kaitlyn and Kolten and $300 for baby Keon.
Neither Kelly nor her husband, Briant, have full-time jobs, she said. In the past, Kelly has worked as a customer service representative and as a tax preparation assistant. Briant has worked as a certified tire technician and now does construction work sometimes, but he hasn’t gotten much work since the pandemic started, she said.
They rely on financial help from friends and family and donations related to their community outreach, which focuses on music and motivational speaking, often at neighborhood events. She’s considering ways to turn that volunteer work into a nonprofit, but for now, it doesn’t generate much income.
Kelly wants to focus full-time on parenting her children, including homeschooling them, she said, so the tax credit money could make a difference for the family.
She’d heard bits and pieces about the tax credits but didn’t know how much was coming or when.
“I really haven’t done the math to think about it. I just leave it alone because you really don’t know what’s going to happen until it happens,” Kelly said.
Memphis second in child poverty
Nearly 22% of Memphians live in poverty, according to census data from the 2020 Memphis Poverty Fact Sheet. The fact sheet is a yearly report compiled and released by Elena Delavega, associate professor of social work at the University of Memphis, and Gregory M. Blumenthal of GMBS Consulting.
The Memphis poverty rate is more than double the nation’s 2019 poverty rate of 10.5%. But the rate of poverty is not borne evenly across the city, with 26% of Black Memphians and 29% of Latinos living below the poverty line. That’s compared to slightly more than 9% for white Memphians.
The overall child poverty rate in Memphis is 35%. Just under 10% of white children live in poverty in the city while 40% of Black children and 33% of Latino or Hispanic children do. Among cities with populations greater than half a million people, Memphis ranks second in childhood poverty, behind only Detroit.
But the economic reality for families is even worse than the poverty numbers show. The federal poverty threshold of $26,500 a year for a family of four is much lower than a livable income, which is the amount needed to meet minimum living standards, said Robert Moffitt, an economics professor at Johns Hopkins University. In Memphis, a living wage for a family of four with two working adults and two children is $74,944 before taxes – or about $18 an hour for each working adult – according to the Massachusetts Institute of Technology’s Living Wage Calculator. Even families who live above the poverty line may still struggle to make ends meet.
“If you work at the minimum wage ($7.25 an hour) and you work full-time – 50 weeks a year at 40 hours a week – you’re still below poverty. That’s not enough to get you above the poverty line if you have a family of three or four and kids to support,” Moffitt said.
Even if the tax credit doesn’t officially lift people out of poverty, it’s still a huge benefit to a family with children, he said.
A “major injection” into economy
Given the instability of the last year, Kelly will not budget the money until it comes in. But when it does, the family will spend it “almost immediately” because they have immediate needs, she said.
Because their needs are often more urgent, lower-income people are more likely to quickly spend money that comes in, as opposed to middle- or higher-income people who may put money in college funds or other bank accounts, Delavega said.
There isn’t enough data now to quantify the local economic impact, said economist John Gnuschke, former director of the Sparks Bureau of Business and Economic Research at the University of Memphis. Still, the money will be a “major injection” into the local economy, he said.
About 25% of the county population is under 18, according to census data. If each of those children qualifies their family for an additional $1,000 in refund credit over what the families previously received, that would bring an initial economic impact of $234 million. And that estimate is the low end since families with children under 6 could qualify for $1,600 more, said Gnuschke, who’s also president of the consulting business 901 Economics.
“A substantial share could be local spending including all the range of consumer expenditures (such as) housing, food, and retail sales,” Gnuschke said via email. “Large positive impact is guaranteed.”
When money is labeled as being for children, it often gets spent on them, said Elaine Maag, who researches programs supporting low-income families and children at the Urban-Brookings Tax Policy Center at the Urban Institute. That could include goods – such as laptops, book bags, school supplies or toys – or intangibles, like Kelly’s dreams of karate or gymnastics.
And the tax credit could also help create and fill jobs, Delavega said. People who had to stay home with children now could use the tax credit on childcare, allowing them to head back to work. Experts have said lack of childcare may be holding back some workers from re-entering the labor force. And in doing so, it also could generate new or better-paying childcare jobs, one of many ways the money will have ripple effects, Delavega said.
“Putting money in the hands of the low-income people immediately improves the economy of the community,” she said.
Investment in children
The credit is a temporary, one-year change – for now. Democrats have said they want to make the tax credit permanent, and experts have said it may be politically difficult to walk back the expansion.
One argument against the tax credit is its cost of $110 billion, according to the Congressional Research Service.
But the investment in slashing child poverty is well worth it, said Kellie Spilman, director of the Early Success Coalition at Porter-Leath, a nonprofit serving at-risk children and families in Shelby County.
“We know that policies that are designed to reduce child poverty lead to better outcomes throughout the lifespan — educational, economic, health outcomes and interaction with the juvenile justice system,” Spilman said.
The tax credit will “generate about $800 billion in benefits to society,” the Center on Poverty and Social Policy found. It will increase the children’s future earnings by $80.6 billion dollars, save $32 billion in taxpayer health care costs, and increase parent health and longevity, according to the center.
Kelly hopes the payments, when they come, will be extended beyond a year.
“It’d help us be able to save for future problems, future emergencies and things of that nature. We’d probably be able to save to make other investments,” Kelly said. “We could save to look into (our) own business, or anything … to help us get out of the poverty or low income that we’re in.”
Q&A
When many families look at their bank accounts Thursday, they might notice some extra money. That’s because that’s when the first of six monthly federal payments is expected to land. Families will receive the money as part of the expanded Child Tax Credit. Here’s a quick Q&A on what the credit is, who qualifies, how much money people will get and what else you need to know.
What is the Child Tax Credit?
The federal child tax credit has been around since 1997 and has gone through various changes. In recent years, it was a partially refundable credit, which meant if a person made enough money to pay taxes, they’d get some of those taxes reimbursed as a credit. People who didn’t make enough to get a tax refund could not get the full credit.
This year, Congress passed President Joe Biden’s COVID-19 relief package called the American Rescue Plan, which temporarily made substantial changes to the credit. Now, the credit is unrelated to whether or not someone pays taxes, meaning every person below a high-income threshold and who claims a child up to age 17 for taxes is theoretically eligible for the full payment. Congress also increased the maximum amount families received by at least $1,000 per child and changed the default payments to installments instead of a lump sum on tax returns.
When do the payments begin and how will families receive the money?
Between July 15th and December 31st, families will get a monthly payment either mailed by check or, if the IRS has up-to-date bank information, deposited directly in an account. After the end of the year, the remaining portion of the 2021 tax credit will be distributed in a lump sum with tax refunds. The credit is a temporary, one-year change for now, though Congressional Democrats have said they want to make the changes permanent.
The IRS has sent letters letting families know the money should be coming, but people who don’t file taxes will need to use the IRS’ Non-filer Sign-up Tool to file simplified tax returns. If families haven’t yet done so, that’s okay. People can update their information online anytime.
Who gets the money and how much will they get?
Anyone with a child will receive $300 a month for each child under 6 years old and $250 per child between 6 and 17 years old, up to a high-income threshold (the previous age limit was 16 years old). If the child’s parents file separate returns (for example, if they’re not married), only one parent can claim the child as a dependent and get the credit.
The payment amounts begin to decrease after $75,000 in income for single filers, $112,500 for head of household filers, and $150,000 for joint filers. Still, families will not receive less than they did before the change to the tax credit.
Parents will be able to change the number of children they are claiming or update their income by using the Child Tax Credit Update Portal, which will be available by late summer, the IRS says.
Who will not get money?
People who make more than $240,000 for single tax filers and $440,000 for joint filers will not get a refund.
Undocumented people may qualify for the tax credits if they have an Individual Tax Identification Number and their children have social security numbers.