Child Tax Credit

By: Chris Kirk

On July 15^th, American families will start to receive direct payments of up to $300 per month per child from the Internal Revenue Services. Funded as part of the American Rescue Plan, this expansion of the existing Child Tax Credit program puts more money into the hands of families and distributes it to them every month rather than waiting until the time of annual tax filing. In total, the tax credit is set to expand from $2,000 per child to a total of $3,600 per child aged 6 and under and $3,000 per child between the ages of 6 and 17. These payments are currently set to last until December 2021, with some advocates pushing to make the change permanent. Some estimates show that such a change might dramatically reduce child poverty, including a 32.8% drop in New Jersey.  

While I will not spend time here supporting or criticizing the policy implications of this law, this increase clearly has the potential to make an incredible impact on the low-to-moderate income families that Norwescap works with each day. These additional dollars on hand could mean the difference between purchasing healthy foods versus cheap, processed meals. The extra money in advance could be the difference between a family being evicted or keeping a stable home for their children. This money could provide that little bit of extra wiggle room that will allow a person to start saving, building wealth to sustain future emergencies, and achieve their goals.  

Data from the ALICE project poignantly demonstrate that 37% of New Jerseyans do not have enough income to supply basic needs in housing, food, healthcare, childcare, and transportation. Standing for “Asset-Limited, Income-Constrained, and Employed”, the ALICE research sets a “household survival” budget that captures a measure of what it truly costs to live in a particular place. The results demonstrate how inadequate the Federal Poverty level is as a measure of economic need, and how reliance on that measure for assistance eligibility is significantly flawed. For example, the Federal Poverty level for a household of four people was $2,092 in 2019, yet in a place like Somerset County, New Jersey, it is estimated that basic monthly household costs are $8,567 per month for a family with two adults and two children in childcare.  

In this context, you can clearly see how $600 each month might help New Jersey families by alleviating the pressure on high-cost items like housing ($1,479 per month), childcare ($1,691). and food ($935). This is great news for families who fall below the ALICE income thresholds, but this also provides an opportunity for families to invest in long-term sustainability that is not possible when you are food insecure, behind on a mortgage payment, or drowning in debt.     

Our internal Norwescap data reveal the stark challenges that these working families face. For example: 

• 75% of families have excessive debt
• 96% of families have sub-par credit scores
• 95% of families have adequate savings for emergencies
• 98% of families have adequate savings to achieve their goals

These numbers illustrate that without the opportunity to build wealth, families may be stuck in a cycle of reliance on resources and struggle to improve their situation. The COVID-19 pandemic taught us the critical lesson that families need access to wealth and resources that can help them withstand fluctuations in income. We need to help more people build a sustainable financial path that keeps debt low, watching savings and investments grow, and provides access to credit markets.  

To address this need, Norwescap has dramatically expanded our Financial Empowerment work over the past year. Our Financial Empowerment Centers are designed to help people manage their resources, build their careers, and increase their wealth. Families are connected to financial coaching and/or employment coaching, where they work to identify needs and set goals that will help them access resources. Then, they have the opportunity to take advantage of a wealth of programs including resume development, job skill training, microloans, and matched savings. We’re systematically tracking our success and learning how we can best help individuals move from debt-ridden and credit-poor with a lack of savings to manageable debt levels, access to credit, and enough savings to not only weather future emergencies but to achieve goals like education, home purchase, or starting a small business.  

Our matched savings, or Individual Development Account, program is perhaps one of the most powerful tools to help families and a resource for those who want to use their new Child Tax Credit payments to build a sustainable future. Participants received match money for their savings deposits and are connected to financial coaching services and supports. Over the past two decades, Norwescap has been able to help hundreds of families save more than 10 million dollars to fund education, purchase assets, or buy their own homes. This program, like the Child Tax Credit, shows how small contributions can make a big difference. Now, we are seeking additional funding for that initiative so more participants can get on a journey to save money, build their wealth, and sustain their future.  

Policies like the revised tax credit are ultimately about trusting people to be the experts in their own needs. The rigid and bureaucratic eligibility processes and criteria for many programs act as barriers between people and the services they need. Our work has demonstrated that when we can match flexible funding with the type hands-on support of a Norwescap team member, we can help people not just get by today, but sustain themselves into the future. In the coming months, the debate will certainly continue over whether the Child Tax Credit changes should end in 2021 or become a more permanent fixture. Norwescap is here to help families put these credits to use, not just to make ends meet today, but start taking small steps to build wealth and resiliency. Each of these steps helps us move closer to a community where everyone has the opportunity to thrive.  

We strongly encourage each of our Norwescap participants to learn more about the new Child Tax Credit to ensure they have access to all the available resources. The  Internal Revenue Service (IRS) has recently produced a Portal where families can check their enrollment status and change their direct deposit information. As always, our team of Engagement Partners is ready to help families connect to the resources they need to move toward thriving.