Most low-income parents spent their advance payments of the child tax credit on food, clothing, rent and utilities, according a report by the Rutgers Center for Women and Work in partnership with the New Jersey State Policy Lab released March 16.
The report also finds that nearly half of eligible parents in New Jersey didn’t receive advance payments, which has RCWW Executive Director Debra Lancaster worried that thousands are leaving money on the table as the April 18 tax filing deadline draws nearer.
“The Child Tax Credit lifts families out of poverty,” Lancaster said. “What this research shows is that low-income households in New Jersey are using the money for basic needs like groceries and paying the bills. That’s significant because it means the policy is doing what it’s supposed to do. But it’s also worrisome that so many low-income parents did not receive any payments last year.”
Under the American Rescue Plan, the child tax credit expanded from $2,000 per child in 2020 to $3,600 for each child under age 6. For each child ages 6 to 16, it’s increased from $2,000 to $3,000. The American Rescue Plan also enabled parents to receive half the total in monthly payments from July through December.
The Census Bureau surveyed parents to find out how they used the money, and Rutgers researchers analyzed the data to focus on New Jersey families. Researchers found that food (34%), clothing (17%), and savings (15%) were the most common uses; and donations/gifts (1%), tutoring (1%), and recreation (3%) were the least common.
Low-income households were much more likely to spend the money on basic needs, while higher-income households were more likely to save or invest it.
One in four parents with a child under age 5 spent at least some of the money on child care.
“The fact that so many parents of young children used the payments on child care really raises a red flag,” said Sarah Small, postdoctoral researcher in the Rutgers Center for Women and Work and co-author of the report. “Without financial support or vast improvements in the state’s child care infrastructure, many of these families will continue to struggle.”
Though nearly every parent in New Jersey is eligible for the child tax credit, just over half (56%) received advance payments last year. The number was even lower (41%) for parents whose household income is less than $25,000.
Rutgers reported that the low numbers could be due to underreporting, parents opting for a lump sum in 2022 over monthly payments last year, or limited awareness of the credit among low-income New Jerseyans.
“The Child Tax Credit helped lift countless New Jersey families and their children out of poverty, but this program only works when families receive their payments,” said Dena Mottola Jaborska, executive director of New Jersey Citizen Action, in a prepared statement. “We urge all eligible New Jersey residents to make use of the free tax preparation services available to them to ensure they receive all the tax credits they are eligible for. We also call on lawmakers to renew the federal Child Tax Credit and establish a similar law at the state level. Putting cash into the hands of working families has been one of the best weapons against economic insecurity.”
Organizations including New Jersey Citizen Action and the United Way of Northern New Jersey are offering free tax preparation for low-income and moderate-income filers. The Internal Revenue Service website can direct residents to free tax prep in their area.