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More than two dozen states are prematurely canceling federal unemployment programs, meaning nearly 4 million Americans will have their benefits cut or cut entirely.
But the monthly child tax break payments, due to begin on July 15, can provide financial rescue for parents who are losing unemployment benefits and having trouble finding a job or not yet able to return.
Households eligible for the credit will receive up to $ 300 per month per child under 6 years of age and $ 250 per month for older children under 18 years of age.
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Meanwhile, states will withdraw from unemployment programs at any time between June 12 and July 10.
According to the US Census Bureau’s Household Pulse Survey, around 48% of households receiving unemployment benefits also have children under the age of 18.
“It will help,” Heidi Shierholz, director of politics at the Economic Policy Institute, a progressive think tank, and former chief economist at the Department of Labor, told CNBC. “But for most families it will only be a fraction of what they lose.”
States end unemployment benefits
Twenty-five states have announced their intention to withdraw from pandemic-era programs that will provide recipients an additional $ 300 per week in unemployment benefits. Most also end the self-employed, gig workers and long-term unemployed benefits, broadly defined as those who have been unemployed for more than six months.
Alaska, Iowa, Mississippi and Missouri will end this aid on June 12, the earliest of the states. Arizona, the last, will do so on July 10th.
The American Rescue Plan offers these federal benefits through September 6th.
According to an analysis of Labor Department data, the average person received a total of around $ 2,500 in unemployment benefits in April. The analysis includes the weekly federal allowance of $ 300.
However, it will be difficult to completely replace these benefits with monthly loan payments.
A household in which one parent receives the average benefit would have to have four children under the age of 6 and five older children to get back roughly the same amount of monthly child tax credit. The household would also need to qualify for the full loan.
The states in question, led by Republican governors, claim that improved unemployment benefits contribute to labor shortages. They believe the funds provide an incentive for workers to stay home instead of looking for a job, which poses challenges for companies trying to hire.
Many economists believe that unemployment benefits could be a factor, but deny that it is central.
Instead, health risks are likely the main driver behind a smaller 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 factors that contribute to older workers’ early retirement and childcare due to irregular school and daycare closings, according to economists.
Child tax credit
In addition to improved unemployment benefits, the American Rescue Plan offers temporary changes to child tax credit.
It increased the maximum annual credit to $ 3,000 and $ 3,600 per eligible child, depending on age and income. That’s $ 2,000 per child. It also pays out the loan in monthly installments that run from July 15 through the end of the year.
The monthly income stream is a prepayment of half the value of the estimated 2021 child tax credit from taxpayers. The IRS bases payment amounts on information reported on 2020 tax returns or 2019 tax returns if that is not available for 2020.
Taxpayers who receive funds by direct deposit are likely to receive payments the fastest, Elaine Maag, a research fellow at the Urban-Brookings Tax Policy Center, told CNBC. Debit cards and paper checks may take a little longer to arrive as the IRS has to mail them out, Maag said.
The IRS is also opening an online portal in the coming weeks that will allow taxpayers to update information that may affect the amount of their tax credit. You can also opt out of receiving monthly payments and instead receive the full amount as a lump sum at tax time in 2022.
There could also be delays when taxpayers update information such as the number of children, which the IRS then has to review, Maag said. The agency will also likely need to undergo additional verification if more than one parent is claiming the same child on their tax returns, she added.