Federal CTC and EITC

Benefits of Recurring Tax Credit Payments

09. 10. 2021

Lessons from the Chicago EITC Periodic Payment Pilot and Implications for Illinois

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The Biden Administration’s American Rescue Plan Act (ARP), passed in early 2021, is designed to respond to the immediate economic needs of the millions of Americans who have been impacted by the economic fallout of the COVID-19 pandemic. This report considers one aspect of the ARP: the expansion of the Child Tax Credit (CTC), which provides a temporary income boost to parents with dependent age children (under 18 years old). The expanded CTC is also the first time the federal government has opted to deliver a portion of the tax credit via monthly payments instead of delivering it all in a lump sum annually. While it will take time to fully understand the impact of the CTC expansion, the goal of this report is to provide empirical evidence from a demonstration pilot in Chicago on a companion policy, the Earned Income Tax Credit (EITC), as we may expect to see comparable results given the similarities of the policies. The Chicago EITC Periodic Payment Pilot (CEPPP) was a large-scale demonstration project that provided low and moderate-income parents up to half of their EITC via four periodic payments during the 2014 tax year. Like the advance CTC, the CEPPP began with the premise that families need tax relief and economic support throughout the year. We also had questions about the administrative feasibility of delivering recurring payments of a tax credit, particularly when the payments are paid in advance of when taxpayers determine their eligibility for the credit. Therefore, this report addresses individual-level impact of CEPPP recipients compared to a control group who received a lump sum and the administrative feasibility of periodic payments. Thus, it provides a window onto the likely impact of the advance CTC.

Summarized Findings

Beneficiaries overwhelmingly favored the recurring periodic payments. At the completion of the CEPPP, 90% of those who received the EITC periodic payments preferred the periodic payment model over the traditional lump sum tax refund.

Recurring payments of tax credits help families pay their bills and debt and promote economic wellbeing. In total, participants allocated 86% of the EITC periodic payment funds to pay bills (e.g. utilities, car notes) and debt, and for basic needs like food and clothing.

Compared to control group participants, intervention participants experienced lower levels of economic hardship during the year, as observed by reports of lower levels of borrowing from family and friends, use of payday loans, unpaid bills, late fees, and food insecurity.

By helping families pay their bills on time and address other economic needs, recurring payments of tax credits can help reduce financial stress and depressive symptoms. Analyses demonstrate that increases in financial resources via the EITC periodic payments helped families address their immediate material needs, which in turn led to a statistically significant reduction in reported financial stress and depressive symptoms.

Recurring payments of tax credits can help provide financial stability, which in turn can reduce housing instability among low-income families. Intervention group participants who experienced job loss, income reductions, and income volatility detailed how the EITC periodic payments helped them pay their rent.

Read the full report.