Child Tax Credit Impact: Families Facing Financial Strain After Payment Cuts

Those payments couldn't have been pulled at a worse time.

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Key points

• The monthly Child Tax Credits that went out in 2021 helped many families secure their finances.
• In the absence of those payments, many are struggling to make ends meet.

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The Child Tax Credit has been around for a long time, but it underwent a lot of changes for the 2021 tax year that made it even more valuable. For one thing, the maximum value of the credit increased from $2,000 to $3,600 for children under age 6 and $3,000 for children aged 6 to 17. The credit also changed to become fully refundable, so if a recipient owed no tax, they could still receive their credit in full.

Just as importantly, half of the 2021 Child Tax Credit was made available in the form of monthly installment payments. The first monthly payment hit recipients' bank accounts in July and the most recent one arrived in December.

Lawmakers were initially aiming to keep the boosted Child Tax Credit in place for 2022. But as of now, the enhanced credit -- and the monthly payment setup that comes with it -- is in limbo. That's because the larger spending bill it's part of is stalled in the Senate and is unlikely to move forward in its current state.

Not surprisingly, losing monthly Child Tax Credit payments has been a blow to many families. And some are really struggling in a serious way.

Families can't make ends meet

Many households were struggling to pay their basic expenses before the pandemic. But these days, a lot of families are having a difficult time for a number of reasons -- inflation, the rising cost of childcare, and lingering income loss, to name a few.

In a recent survey by ParentsTogether Action, 22% of respondents said they've been unable to meet their family's basic needs since losing their monthly Child Tax Credit payments. More specifically, 22% said they can no longer afford enough food for their children, and 10% said they can no longer afford to pay for health insurance, medical bills, or medications.

All of this makes it clear that a lot of families became heavily reliant on their monthly Child Tax Credit payments -- and are now facing a world of financial insecurity without them. Furthermore, a good 77% of those surveyed said that those monthly installments made them less anxious about their finances in general.

What happens now?

If lawmakers don't find a way to move the boosted Child Tax Credit forward for 2022, then families will still be paid something under the credit. But they'll be limited to a maximum credit of $2,000 per child, and they won't see any of that money in 2022. Rather, they'll have to wait until they file their 2022 tax returns in 2023 to get the funds they're owed. And while having that payment to look forward to is better than not having it at all, the reality is that a lot of families can't afford to wait a year when they're struggling to pay the bills now.

Not only is the boosted Child Tax Credit on the line, but based on current economic conditions, it's unlikely that another stimulus check will go out in 2022. That may not be a big deal for moderate earners, but for lower-income families with children, it's yet another massive financial blow.