Child Tax Credit Payments May Have Mild Stimulus Effect on Economy

Chris Gaetano
Published Date:
Jul 12, 2021

The enhanced child tax credits, a key part of the American Recovery Plan Act, might have an economic impact akin to the pandemic-related stimulus payments, though milder, CNBC reported

The program represents a major revision of the way the child tax credit is distributed. First, the credit is worth $3,000 rather than $2,000 per child, and the age limit for qualifying children has been raised from 16 to 17. More significantly, the credit will be paid out in monthly payments throughout the year rather than all at once at tax time, making it act more like a social service. Eligibility for the payments, which are scheduled to start on July 15, is calculated based on tax information, but if a parent doesn't generally file taxes, the IRS does not have this data and cannot check to see whether the parent qualifies. To this end, the IRS released an online sign-up tool and recently held events in 12 cities to help people register. 

Economists believe that when families get money, they usually spend it on goods and services, which is beneficial for the businesses that provide them. The child tax credits, by giving parents regular payments, are estimated to give the economy a boost as well. Poorer families are anticipated to spend the credit on keeping food on the table, enacting home repairs or paying rent; more financially secure families are predicted to use their money on goods such as laptops, new clothes for school or other discretionary items. Either way, economists believe that that the main beneficiaries of the new spending, besides the families themselves, will be retailers such as Walmart, Target or Costco, as well as auto parts suppliers. Because the payments will be smaller than the lump sum stimulus payments that Americans previously received, the effect on the economy will probably be smaller, but still noticeable. 

Overall, the IRS estimates that 39 million households, which account for 90 percent of the children in the United States, will receive payments through this program. 

The Foundation for Accounting Education's Tax and Financial Planning for Individuals Conference will be held on Nov 11, 2021. You can Register for the In-Person Event here or for the Webcast here

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