Nearly two dozen states are ending federal unemployment benefits early, meaning millions of people will soon see their aid reduced or eliminated.
But families can expect a cash infusion from a different source — the child tax credit — roughly around the same time their jobless benefits dry up.
The IRS will start sending monthly payments of the tax credit starting July 15, the agency said last week. Eligible households will get up to $300 per kid under age 6 and $250 for older kids under 18.
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Meanwhile, states are withdrawing from unemployment programs anywhere from mid-June through mid-July.
Funds from the child tax credit may help offset some of a household’s lost income if laid-off workers lose unemployment benefits but aren’t able to find a job or return to work.
Roughly 46% of households receiving unemployment benefits also have kids under age 18, according to the U.S. Census Bureau’s Household Pulse Survey.
“It will help,” according to Heidi Shierholz, director of policy at the Economic Policy Institute, a progressive think tank, and former chief economist at the Department of Labor. “But for most families it will be just a fraction of what they’re losing.”
States ending unemployment
At least 23 states have announced their intent to pull out of pandemic-era programs offering recipients an extra $300 a week in unemployment benefits. Most are also ending aid for the self-employed, gig workers and long-term unemployed (generally those out of work more than six months).
Alaska, Iowa, Mississippi and Missouri are ending that aid June 12, the earliest among the states. Arizona, the last, will do so July 10.
The American Rescue Plan offers those federal benefits until Sept. 6.
The average person received roughly $2,500 a month in total unemployment benefits in April, according to an analysis of Labor Department data. (The analysis includes the $300 weekly federal supplement.)
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However, it will be difficult to fully replace those benefits with monthly credit payments.
A household in which one parent receives the average benefit would need to have four children under age 6 and five older kids to get roughly that same amount back in monthly child tax credit payments. (The household would also need to qualify for the full credit.)
The states in question, led by Republican governors, claim that enhanced jobless benefits are contributing to a labor shortage. They believe the funds incentivize workers to stay home instead of look for a job, creating challenges for businesses trying to hire.
Many economists think unemployment benefits may be a contributing factor but dispute that they play a central role.
Instead, health risks are likely the primary reason for a reduced labor pool, they said, pointing to an ongoing threat of Covid infection and relatively low vaccination rates among working-age adults.
But there are other contributing factors, too, like early retirements among older workers and child-care challenges due to erratic school and daycare closures, according to economists.
Child tax credit
In addition to offering enhanced jobless benefits, the American Rescue Plan also made temporary changes to the child tax credit.
It boosted the maximum annual credit to $3,000 and $3,600 per qualifying child, depending on age and income. (That’s up from $2,000 per kid). It also pays the credit in monthly installments, which will run from July 15 through year-end.
The monthly income stream is an advance payment on half the value of taxpayers’ estimated 2021 child tax credit. The IRS is basing payment amounts on information reported on 2020 tax returns (or, 2019 returns if those for 2020 aren’t available).
