Rarely do policy and employee needs collide to create truly meaningful financial change.
But the 2021 IRS Child Tax Credit (CTC) offers a once-in-a-lifetime chance to get savings right.
In an unprecedented move, the United States Congress passed legislation to provide relief for all parents of children ages 0 to 17. For 39 million American households and 65 million children, we estimate that the $250-$300 per child monthly tax credit will represent a median income boost of 8-15%.
That increase will help parents address food insecurity, pay for child care and meet other financial needs.
For HR managers and employers, the expanded tax credit should create a sense of urgency — urgency to enable their employees and their families to multiply the credit’s impact and achieve company-wide well-being goals.
In short, now that parents have the capacity to save, it’s time for employers to provide them with the capability to follow through with an employer-sponsored savings program.
What is the Child Tax Credit 2021?
The tax credit for parents is not new, but the 2021 Child Tax Credit Relief Bill is revolutionary.
The credit is normally available when taxes are filed, but advance payments started this month and go through December in response to the financial effects of the pandemic. Families can claim the remainder of their money when they file their 2021 tax returns next year.
On July 15, the IRS started sending $250-$300 monthly Child Tax Credit (CTC) payments to eligible low-to-moderate income households.
Here are key facts from the Tax Policy Center about the credit:
- The tax credit is fully refundable (although parents should be aware of certain stipulations). Even families who earned $0 in 2021 may still be eligible.
- Unlike the 2020 credit, it covers children who turn 17 in 2021.
- The annual child tax credit is up to $3,000 for ages 6 to 17 (up from $2,000) and is $3600 (up from $2000) for under 6.
Single taxpayer parents qualify for the full child tax credit amount if their adjusted gross income (AGI) is $75,000 or less (that amount lowers for incomes above $75,000 and phases out for incomes over $240,000), as you can see in the graph below from the Tax Policy Center.
Parent employees now have the capacity to save.
Emergency savings is on everyone’s mind coming out of the pandemic. This tax credit provides extra financial capacity that meets parents’ desire to save and helps them achieve financial goals to support their children’s future.
It positively challenges — and changes — the status quo. Forty-seven percent of low-income adults say they are usually not able to save (vs. 25% of middle-income adults and just 8% of upper-income adults).
These same adults must often turn to payday loans and credit cards to access immediate cash, creating a costly cycle of debt.
But unlike high-interest credit options, the tax credit money is unrestricted and offers a free source of liquid cash. This means that nearly 39 million households, or most American families, finally have risk-free money to save for their kids — for everything from emergency daycare to school supplies to future college tuition.
For Marla Snea, a 52-year-old mom who is battling cancer and living on Social Security benefits, the money will make all the difference for her and her 14-year-old daughter. “Two hundred and fifty dollars, to me, is like handing a pauper a million,” says Snead. “It is going to help me so much. I mean, even Christmas – I might be able to get my children Christmas.”
Stash found that 57.5% of families are planning to save the child tax credit, placing the money in a standard savings account.
And studies from the last stimulus payment prove that parents will follow through. On average, households used or intended to use 34% of the stimulus check to pay down debt and saved 42% of the stimulus payments they received from the most recent COVID-19 relief bill in April.
Parent employees can better plan their monthly finances.
Seventy-two percent of low-to-moderate income families who make less than $50,000 per year live paycheck-to-paycheck, with 33% struggling to pay their bills, according to a 2021 study by LendingClub.
Not surprisingly, the majority of income goes toward expenses rather than savings.
The tax credit will allow these families to plan for the future, rather than focusing on staying afloat day-to-day.
“Getting part of the credit as monthly payments is a boon to low-income families, which often struggle with fluctuating incomes,” says Timothy Flacke, executive director of Commonwealth, a nonprofit group that focuses on financial security. “This is a really, really big deal. They can make financial plans around it.”
And according to Schwab’s 2019 Modern Wealth Survey, 56% of people who plan their finances feel “very confident” they will reach their financial goals (as compared with only 17% of non-planners).
The tax credit offers savings capacity that was previously out of reach to this underserved population.
Enable parent employees to save with a dedicated program.
Now that parents have the capacity to save for their families, employers can provide the capability to act by offering an employer-sponsored savings program that rewards employees for their resilient savings behavior. And according to AARP Research, 9 in 10 working adults are asking for emergency savings as a benefit.
Sponsor a standalone savings account with appropriate deposit insurance from the FDIC or NCUA for your employees to automatically contribute part of their tax credit, even if it’s just $20 per month. The money is then easily accessible for emergencies and parents can create a financial safety net for themselves and their kids.
Consider it a unique way to multiply or magnify the impact of the CTC for your employees and their families.
A structured program encourages the habit of saving through rewarding positive saving behaviors, which lays the groundwork for long-term financial well-being.
With stimulus checks + these child tax credit payments, this period in time is a rare reset button on finances. But the behavior to save still needs to be developed, and that’s where employers have the opportunity to crush it.
And as you help your employees save and lower their financial stress, you also help your company with better retention, productivity, and well-being. It’s a win-win situation for all involved.
Take advantage of this unprecedented opportunity to help your employees save.
By leveraging the Child Tax Credit 2021 and people’s own desire to save, leaders can lower financial vulnerability, improve productivity and retention, and achieve their impact goals.
Want to help your own employees save and improve their finances? At Sunny Day Fund, we offer a customizable employer-rewarded savings program. With high voluntary enrollment and high return on investment, the program is a powerful way to become an employer of choice – especially for your frontline workers.
Reach out to us at contact@sunnydayfund.com and ask about our special 2021 Child Tax Credit promotion!
