The child tax credit encourages parents to work, study finds

The new enhanced child tax credit may help parents continue working, a recent study shows.

Nearly 94% of parents said they planned to continue working or even work more once receiving the credit, which began in monthly installments in July, according to a report from a team of researchers from Washington University of St. Louis, Appalachian State, UNC-Greensboro, the Urban Institute and Humanity Forward.  

Only 6.4% of respondents said they’d use the credit to either work less or change jobs, and those that did were more likely to have young children or a partner at home. To that point, some 11.2% of parents with infants or toddlers said the credit would change their work status, and roughly 20% of those who said they’d use the credit to stay home lived with a spouse or partner.

“Allowing parents, especially mothers, to meet those caretaking requirements is especially important,” said Leah Hamilton, an associate professor of social work at Appalachian State. “That support helps families gain better footing, raise their children and make greater long-term contributions to the economy.”

More from Invest in You:
The ultimate retirement planning guide for 2021
Divorce can devastate women’s retirement savings. Here’s how to rebuild
Is your retirement at risk? Experts these policy changes are needed

Of course, there’s currently a debate over the future of the credit and whether it should be tied to work. While most Democrats want to extend the enhanced credit through 2025, moderate Senator Joe Manchin, D-W.Va., has argued for work to be required to get the benefit.

Yet increasing requirements on aid programs, such as work restrictions, keeps the poorest children from getting help, according to Hamilton.

“What you mostly find is that you’re excluding the most vulnerable children of parents who have complex barriers to employment,” she said, adding that includes illness and disability.

Could boost entrepreneurship

The study, which surveyed a nationally representative group of 1,514 parents eligible for the credit before the first monthly payment in July, also found that the program could help boost entrepreneurship.

 Of those questioned, 21.3% are either currently running their own business or planning to start one. Getting the credit over the next six months will help support these families as they continue to build or start new businesses.

“There’s unmet hunger for entrepreneurship in U.S. households,” said Steven Roll, a research assistant professor at the Social Policy Institute at Washington University in St. Louis, adding that expenses such as childcare, utilities and rent, are all common barriers to starting one’s own business.

“What we’re seeing here is that [child tax credit] may help families solve that equation,” he said. This is also highlighted by the finding that 72% of families said they would prefer to get monthly payments over a lump sum at tax time.

“This to me speaks to the need that these families have for day-to-day liquidity coming in,” Roll said.

Further support kids and the economy

Beyond supporting families at work, the credit would also potentially help level the playing field for children in low- and moderate-income households, said Roll.

Families in this group said they intended to use the money to pay for essentials, save and pay for some extra-curricular activities for children, which are often only accessible to those in higher income households.

And, there’s further evidence that the enhanced credit may boost the economy. A report by the Niskanen Center, a non-profit think tank, estimates that across the next 12 months an expanded child tax credit would increase consumer spending by $27 billion and support the equivalent of 500,000 private-sector jobs.

“A child tax credit that’s well-designed and broadly supported has the potential to generate billions of dollars in economic activity and growth,” said Liam deClive-Lowe, executive director of Humanity Forward.

SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox.

CHECK OUT: How to make money with creative side hustles, from people who earn thousands on sites like Etsy and Twitch via Grow with Acorns+CNBC.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.