Policy

•

12.05.24

Insights from OpenResearch on the 2021 Expanded Child Tax Credit

Lessons for policymakers from the most comprehensive study on cash transfers in the U.S

As the Trump-Vance administration prepares to take office, the Child Tax Credit (CTC) is expected to be on the policy agenda. During the campaign, both Trump and Vance signaled support for an expanded CTC, with Vance proposing a $5,000-per-child benefit but initially offering few specifics on eligibility criteria, income phase-outs, or refundability. As the administration considers the policy details, they have a unique opportunity to incorporate insights from the 2021 CTC expansion and the OpenResearch Unconditional Cash Transfer Study to maximize the impact. Chief among these lessons is the critical need for full refundability, which research shows would provide the greatest benefit to the nation’s most vulnerable children.

We collected detailed data before, during, and after the expansion as part of the OpenResearch Unconditional Cash Transfer Study, allowing us to offer another perspective on the impact of the CTC expansion. Our findings suggest that the expanded CTC either improved families’ well-being or provided a temporary buffer against escalating food and housing costs in 2021. When the credit expired, hardship levels rose sharply, especially among the lowest income families. This pattern underscores the following key policy takeaways:

• Temporary, uncertain benefits limit families’ ability to plan for the future.
• Monthly vs. lump sum payments may lead to different financial behaviors, and this can be leveraged for different policy goals.
• Refundability and expanded eligibility are crucial for impacting the most vulnerable families.

The 2021 Child Tax Credit Expansion

The American Rescue Plan temporarily increased the maximum child tax credit from $2,000 per child to $3,600 per child under age 6 and $3,000 per child ages 6–17. The expansion also removed the requirement that households earn at least $2,500 to be eligible and made the credit fully refundable, meaning that a household could receive the full amount even if they did not owe any taxes or their tax bill was lower than the credit.¹ For the first time, families received monthly payments: half of the total amount was sent in 6 installments between July and December 2021, while the second half was distributed as a lump sum payment when they filed their taxes in 2022.

Several studies have used survey data to examine the impact of the CTC expansion, highlighting substantial reductions in food insecurity among recipients.^2-11 The effects of the expansion on other types of financial and material hardship are less consistent: some studies found improvements with varying levels of significance,^4,5,7 while others report no change.⁶ Most studies also found no effect on parental stress or mental health,^4,11 though one reported decreased depression and anxiety among low-income parents.¹²

Exploring the impact of the CTC expansion with OpenResearch data

The OpenResearch Unconditional Cash Transfer Study, which began in 2019, regularly surveyed 3,000 participants ages 21 to 40, over half of whom were parents. Our goal was to understand the effect of monthly unconditional cash transfers on a wide range of outcomes, including financial and material hardship, resilience, and expenditures—outcomes of interest to policymakers considering the benefits and limitations of an expanded Child Tax Credit. All of this rich and granular data provides an opportunity to explore the impact of the CTC on study participants and their children.

We focused on participants with children under 18 in the household at the end of 2020, mirroring IRS CTC eligibility criteria. Comparing outcomes for this group before, during, and after the expansion alone would not account for other pandemic-related policies or economic factors that could also affect outcomes. To better isolate the impact of the CTC, we compared outcomes of CTC-eligible participants with those who were not eligible, adjusting for characteristics like household size, age, education, employment, income, race/ethnicity, gender, location, cash transfer amount, and other factors that might influence differences between groups and between households within each group.

This approach allowed us to track changes over time among both eligible and non-eligible groups to estimate the extent to which any changes may be attributed to the CTC expansion as opposed to other factors that affected both recipients and non-recipients. While this method does not establish causation, it provides meaningful insight into the impact of the CTC expansion to inform discussions about future policy decisions.

Key Lessons from the CTC Expansion

1. Address gaps in receipt among eligible families

Removing the minimum income requirement and making the CTC fully refundable extended benefits to children in the lowest income households. Despite the relatively frictionless disbursement process—there was no application and payments were automatically deposited into recipients’ bank accounts—only 70% of OpenResearch study participants who should have been eligible for the CTC reported receiving it when surveyed in the spring and summer of 2022. While some participants may not recall the payments or might have confused them with other programs, a portion of eligible recipients still missed out on these funds.¹⁴

Data from the OpenResearch study shows clear differences between eligible households that reported receiving the CTC and those that did not. Based on information collected at enrollment (prior to the CTC expansion), non-recipients were significantly more likely to be unbanked, unmarried, unemployed or working fewer hours, have less than $100 in savings, have stayed in a shelter or other irregular housing at least once during the previous year, and report incomes below the federal poverty threshold.

The CTC disbursement process reduced many barriers to take up and ensured that most eligible households received the funds. Yet gaps remained, underscoring the need for targeted outreach to improve access for the most disadvantaged to strengthen the effectiveness of the CTC and other benefits.¹⁵

2. Temporary and uncertain benefits can only achieve so much

2021 was a tumultuous time for families. There was change and uncertainty in the economy and labor market, in schools and daycares, in communities, and in the public policy landscape. Pandemic-era expansions of safety net programs and other benefits began to expire, inflation rose, and the temporary socialization of the risks and burdens exacerbated by COVID and the associated disruptions began to shift back onto individuals and families. Many people assumed that the CTC expansion would be extended, but there was never any certainty and ultimately no action was taken.

For low-income families with children trying to make ends meet during this time, the CTC expansion provided a helpful infusion of cash but was too uncertain to rely on for medium-term financial planning or survival strategies. A common refrain among participants in the unconditional cash transfer study—even those receiving $50 per month—was the value of the stability and reliability of the payments. Knowing they would get it on the third Wednesday of every month for three years had an impact separate from the money itself, and that crucial element was missing from the temporary CTC expansion.

At the beginning of the OpenResearch study, many participants faced significant challenges, including unmet basic needs, unstable living conditions, and precarious jobs. These stressors limited their sense of agency—not only to pursue goals but even to imagine them. The constant pressure to meet basic needs left little time, energy, or emotional capacity for future planning. The stability and reliability of the monthly transfers, along with the program’s three-year duration, provided many recipients with the space and resources to envision a more expansive future. The unconditional cash transfers had a positive and significant impact on budgeting and planning for the future, the desire to pursue further education, interest in entrepreneurship, and moving to new housing and new neighborhoods. Not everyone was able to take steps toward achieving their goals, as three years of support could not eliminate all obstacles. However, the program’s consistent, predictable structure gave recipients a rare chance to plan ahead—an opportunity that shorter term or less reliable benefits cannot offer.

3. Monthly payments and lump sums may have different impacts

The Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) make up a significant portion of federal spending on benefits and services for low-income individuals and families, second only to health care.¹⁶ Typically, the EITC and CTC are issued as lump sum payments when eligible households file their tax returns. While many studies describe how recipients use these lump sum payments, the six monthly payments sent during the CTC expansion and the cash transfers from the OpenResearch study provide a unique opportunity to explore how the impact of monthly payments may differ from a lump sum.

The experiences of OpenResearch study participants support other researchers’ findings: how and when cash payments are distributed matter.^2,17 During the three-year cash transfer period, recipients primarily used the monthly cash transfers to meet their basic needs. Spending increased across all categories, but the largest impact of the transfers, in dollar amounts, was on food, rent, transportation, financial support to others, and child-related expenses. Recipients reported more savings and a greater ability to handle financial shocks. Expenditure volatility declined as the monthly payments helped recipients smooth consumption. We did not find significant increases in assets or changes in net worth, however, which suggests that recipients spent most of the transfer meeting current needs and coping with unexpected expenses. In contrast, studies of EITC recipients found that a sizable portion of the lump sum is spent on large purchases like vehicles, debt repayment, housing deposits, education, or on building savings.^18-20

During the CTC expansion, recipients used the monthly payments to cover regular expenses like food and utilities, creating a temporary buffer against rising food and housing costs. This support reduced food insecurity and helped maintain pre-expansion levels of hardship despite increasing prices and economic uncertainty. Hardship levels began to rise immediately after the monthly payments ended, even though households received the second half of the CTC funds as a lump sum in early 2022. Previous research suggests that lump sum EITC and CTC payments do reduce food insecurity, but most of these studies measure food insecurity over a 12-month period and don’t capture month-to-month variation.²¹ Stretching a one-time lump sum to cover regular expenses over multiple months is challenging, particularly during periods of economic volatility. Few could have foreseen and budgeted for a 50% spike in egg prices, for example. Between inflation and the tendency to spend more of a lump sum payment on large purchases or debt repayment rather than monthly expenses like groceries, the lump sum did not have the same effect on food insecurity.

The findings suggest a crucial policy insight: the structure of cash benefit distribution—whether as a lump sum, monthly payments, or a blend of both—may significantly influence the impact. Lump sum payments, while beneficial for addressing major expenses or reducing debt, may not offer the same ongoing protection against day-to-day hardships, such as food insecurity, that monthly payments do—particularly during periods of inflation or economic uncertainty.¹⁷ Policymakers should recognize that the decision about payment frequency is more than a technical detail; it is a strategic mechanism that can be used to meet distinct policy goals.

4. Expanding eligibility and making the credit fully refundable strengthened the impact

Prior to the CTC expansion, one-third of children—about 19 million kids—were either ineligible or did not receive the full credit because their household did not meet the earned income threshold, including nearly half of all Black and Hispanic children in the US.^2,3 According to the Census Bureau, the expansion lifted 2.9 million children out of poverty in 2021, and 2.1 million of those children would have been in poverty in the absence of the expansion.²² The largest decrease in poverty occurred among the lowest income households, leading to the greatest single-year reduction in child poverty and a record low rate of 5.2%.

Many children were no longer eligible for the maximum (reduced) benefit in 2022 once the full refundability provision expired. It is for this group—the lowest income families—that we find the largest impact, measured in terms of improvements during the CTC expansion or worsening conditions after. The monthly CTC payments reduced utility bill delinquency and food insecurity from July to December of 2021, but the lowest income households were least able to make ends meet without that buffer. Food insecurity and rent delinquency increased considerably immediately after the monthly payments stopped, while the rate of increase was lower for higher income households. We saw a similar pattern with child-related expenditures: as soon as the monthly payments stopped, spending on children returned to pre-expansion levels for the lowest income families, while the decrease was not as large for families with incomes above the poverty threshold.

For policymakers interested in reducing poverty rates among children in the U.S. and lowering the extent to which parents’ ability to work and their employment choices affect child well-being, reconsidering the eligibility criteria and refundability of the CTC is a clear policy lever.

Detailed Findings

Food Security and Nutrition

Similar to other studies, we find that OpenResearch unconditional cash transfer study participants eligible for the expanded CTC reported significant reductions in food insecurity in July through December of 2021, the months in which the installment payments were disbursed. We administer the six-item version of the USDA Food Security Survey Module for both adults and children to measure access to food during the previous 30 days, utilizing the scoring cutoff established by the USDA to indicate food insecurity.

Compared to the period prior to the CTC expansion, adult food insecurity in eligible households decreased by 6 percentage points during late 2021, an amount equivalent to 14% of the average prior to the expansion. We also collected data on food security specifically for children in the household. While we lack a comparison group for this metric (since ineligible households don’t report on child food security), we observed a similar decline: food insecurity among children in eligible households dropped by 4 percentage points during the expansion, a reduction of over 17% relative to pre-expansion levels.

However, this progress quickly reversed once monthly payments ended. In early 2022, adult food insecurity increased by 5 percentage points relative to the pre-expansion period among households with incomes below the poverty threshold, an 11 percentage point uptick from the expansion period. The increase is not statistically significant (relative to the pre-expansion period) in the first half of 2022 but gets larger and becomes significant by the second half of 2022. Similarly, the 4 percentage point decline in child food insecurity in all households during the expansion became a 4 percentage point increase in the six months after the monthly payments ended (all compared to the pre-expansion period). Expenditures on food increased by about $15 per month on average during the second half of 2021, but the increase is not statistically significant. Expenditures returned to pre-expansion levels in the first half of 2022 before declining further.

In addition to tracking food security and expenditures, we collected unique data from nutrition diaries detailing the quality and nutritional value of food consumed by study participants.²³ While food quality remained stable during the CTC expansion, we observed a modest but statistically insignificant decline in food quality in the first half of 2022 that continued through 2023 and became significant. Although food expenditures in the post-expansion period stayed similar to pre-expansion levels, this decline in food quality coincided with a steady increase in food insecurity, especially among the lowest-income households.

The rapid fadeout of the improvements may seem surprising, especially since recipients received the second half of the CTC as a lump sum in 2022 when filing taxes. However, the context helps explain this trend. After a short-term increase in food prices early in the pandemic, data from the Bureau of Labor Statistics Consumer Price Index (CPI) shows that food prices began to rise steadily by summer 2021, reaching peak year-over-year percentage increase in August 2022. Higher food costs hit families hard, especially those already financially vulnerable as a result of the pandemic. The fact that we observe significant reductions in food insecurity among CTC-eligible households during the early inflationary period—at a time when food insecurity increased for ineligible households—suggests that monthly CTC payments temporarily shielded recipients from the burden of rising prices, allowing them to increase food spending and food security. When monthly payments ended in December 2021 and inflation continued to rise, recipients could no longer sustain this spending level, leading them to rely on lower-quality, less nutritious food and contributing to increased food insecurity. OpenResearch study participants were not unique in this regard; other studies have documented increases in food insecurity and food insufficiency in 2022.^3,24

And yet a key feature of the CTC expansion was the division of the funds into two parts: half was distributed in monthly installments in the second half of 2021 and half was distributed as a lump sum when households filed their 2021 taxes by April of 2022. One might expect a temporary increase in hardship while they waited for the lump sum, but we observe a sustained increase in several forms of hardship throughout 2022. As many years of research into the Earned Income Tax Credit (EITC)^18-20 and at least one study comparing the effects of the monthly and lump sum portions of the 2021 expanded CTC suggest,²  however, households appear to treat lump sum and monthly payments differently. They are more likely to use lump sums to make a significant purchase (such as buying or repairing a vehicle) or pay down debt and allocate a smaller portion of a lump sum to pay ongoing expenses like food. Because of this, the lump sum portion of the CTC did not have the same effect on food security as the monthly payments.

Housing and Medical Hardship

At a high level, we do not observe many significant improvements in housing hardship during the CTC expansion period compared to the preceding period.²⁵ There is no effect on rent or mortgage delinquency, use of shelters or other irregular housing, or staying with others for financial reasons. Utility bill delinquency is the one exception: though the nearly 3 percentage point decrease in delinquency in the full sample is not significant, there is a very large 16 percentage point decrease in delinquency among households with incomes below the poverty threshold. Utilities are regular monthly expenses like groceries, and the fact that the effect is concentrated among the lowest income households highlights the impact of expanded eligibility and full refundability.

We explored the impact of the CTC expansion on several measures of medical hardship, including indicators for being unable to access dental or medical care or refill a prescription due to the cost. We did not find any significant changes during or after the expansion compared to the pre-expansion period.

Child-Related Expenditures

In addition to measures of hardship, we have data on a variety of household expenditures, including expenditures related to children. We collected expenditure data in December of 2021, allowing us to compare spending patterns during the CTC expansion to other time periods.²⁶ Overall, child related expenditures increased by about $85 per month during the CTC expansion period relative to the preceding period. This increase was consistent across income levels, with families above the poverty threshold spending an additional $87 per month and those below the threshold spending an additional $78 per month. By the first half of 2022, however, child-related spending for families below the poverty threshold reverted to pre-expansion levels, while spending for families above the threshold remained significantly higher by $38 per month. The temporary CTC expansion allowed families across all income levels to invest more in their children, but when the expansion ended and spending declined it was the lowest-income children who experienced the loss most acutely.

Parental Stress

Consistent with other studies, we found no reduction in parental stress during the CTC expansion compared to the pre-expansion period, though stress levels steadily rose afterward.^4,11 This is unsurprising given the uncertainty about whether the CTC expansion would be extended, coupled with ongoing inflation and economic instability. While the temporary cash infusion helped families meet immediate needs, it lacked the long-term stability that is more likely to significantly alleviate stress.

Conclusion: A Path Forward

The 2021 expansion of the CTC brought the child poverty rate to its lowest level in history. It allowed families to access a reliable stream of income, helping them address rising costs in food, housing, and other essentials amid economic uncertainty. Since the expansion ended and many of the lowest income families no longer receive the credit (or receive a smaller amount), the child poverty rate has surged. By 2023, more than one in eight children were living in households with incomes below the poverty threshold.

The consequences of this steep increase in child poverty extend far beyond the families struggling to make ends meet. Children living in poverty bear no responsibility for their circumstances, yet they are more likely to face physical and mental health challenges, substance abuse, involvement in the criminal justice system, lower educational attainment, and diminished earning potential in adulthood as a result.^27-37 The social cost of child poverty in the U.S. is staggering, estimated at over $1 trillion per year in 2018 alone, equating to 4 to 5.4 percent of GDP.^38,39

The incoming administration and legislators from both parties have voiced support for a more permanent CTC expansion. As these proposals take shape, there is a pivotal opportunity to draw on the extensive research and lessons from the 2021 expansion and other cash transfers. Evidence shows that a fully refundable CTC with no earned income minimum is essential to ensure that benefits reach the most vulnerable families who stand to benefit the most.