States That Needed Advance Child Tax Credit Payments the Most

In March 2021, Congress passed the American Rescue Plan, which — starting in July 2021 — provided families payments of up to $300 a month for each child younger than 6 and up to $250 a month for each child ages 6 to 17. The expanded program expired at the end of December 2021, leaving some families with tighter monthly budgets and dwindling savings account balances.

The latest MagnifyMoney study found the program’s expiration most affected residents in Mississippi, nearly 9 in 10 of whom mainly spent their latest payment on day-to-day needs, like groceries and clothes, or used it to pay off debt.

These advance payments (which are normally distributed in one lump sum after filing taxes) helped many families, especially those with one or both parents who were unemployed and had to pay for food, utilities and other essentials, according to DepositAccounts founder Ken Tumin.

“The restart of those advance payments in 2022 would continue that help, which is still important for many families who are still unable to work due to pandemic-related issues,” Tumin says. As of now, though, political opposition has stopped a possible continuation.

Key findings

• Mississippi residents most urgently needed the additional child tax credit money. A MagnifyMoney analysis of U.S. Census Bureau data showed 89.9% of Mississippi families who received child tax credit money in the past four weeks mostly spent it on day-to-day needs like groceries and clothes or debt payments. In contrast, just 59.8% of West Virginia families said they spent their payment the same way — lowest in the U.S.
• Mississippi also had the highest percentage of families who received a child tax credit in the past four weeks, at 26.8%. Utah (26.4%) and Louisiana (25.5%) followed. At the bottom were the District of Columbia (11.6%), New Hampshire (14.0%) and Montana (14.8%).
• Among Americans who reported mostly spending their latest advance payment on day-to-day needs or debt payments, food was the top priority. Utilities and telecommunications and clothing followed this.
• The advance child tax credit was significant for families with lower incomes. Nearly 90% of respondents with a household income below $25,000 reported primarily using the child tax credit money on day-to-day needs or debt payments, compared with 46.2% of those earning $200,000 or more.

Mississippi residents most urgently needed advance tax credit

Mississippi had the highest percentage of residents who urgently needed the additional child tax credit money. In fact, 89.9% of Mississippi families who received child tax credit money in the past four weeks reported mostly spending it on day-to-day needs like groceries and clothes or debt payments.

To give that percentage further context, only 59.8% of West Virginia families reported mostly spending their payment the same way — the lowest in the U.S.

To calculate these percentages, MagnifyMoney researchers used Census Bureau data to find the number of residents in each state who received a child tax credit payment in the past four weeks — at the time of the early December survey. Researchers then calculated the percentage who reported they mostly spent it or used it to pay off debt (saving was the third option).

A low median household income could have contributed to Mississippi parents relying on these tax credits more than other states. In 2020, the median income in Mississippi was just $44,966, lowest in the U.S. and far below the national average of $67,521. The unemployment rate as of November 2021 — the latest available at the state level — was 5%, nearly a percentage point higher than the national jobless rate that month of 4.2%.

While the second most reliant state — Indiana — has a median household income more than $20,000 that of Mississippi, its residents have other financial issues to overcome. For example, a 2021 LendingTree study found that Indiana households with children younger than 5 spend an average of 20% of their income on child care — highest in the U.S.

FROM AUGUST 2021: 82% of parents with kids younger than 18 support extending monthly child tax credit payments past 2021

Meanwhile, West Virginia was the state where residents needed these tax credit payments the least for day-to-day needs and debt payments, followed by Wisconsin and New Hampshire.

West Virginia is harder to explain because its median household income — $51,615 — is in the bottom five across the U.S., far behind Wisconsin ($67,094) and New Hampshire ($88,235). Its unemployment rate — 4% as of November 2021 — was in the middle, too. (That said, if the advance child tax credit payments aren’t resumed in 2022, the Mountain State’s Democratic U.S. senator might be considered its main roadblock, having previously expressed disapproval of the policy in its current form.)

Mississippi had highest percentage of families who received payments

Mississippi was also at the top for having the highest percentage of families who received a child tax credit in the past four weeks, at 26.8%.

While Utah (26.4%) ranked second for the highest percentage of families receiving this tax credit, payments weren’t as urgently needed. In fact, Utah was among the bottom 10 states where residents needed them the most.

Louisiana ranked third (25.5%), trailing Utah by less than a percentage point. But unlike Utah, Louisiana residents needed these payments more: The Pelican State ranked ninth for need, versus 43rd for Utah.

Louisiana saw the second-highest increase (111%) in child care costs at center-based providers during the pandemic, which likely contributed to residents’ needs there.

Source: MagnifyMoney analysis of U.S. Census Bureau Household Pulse Survey data.

The District of Columbia had the lowest percentage of families receiving a child tax credit and the fewest number of families (63,497) receiving the payment in the period analyzed.

Following were New Hampshire (14%) and Montana (14.8%), both of which had relatively low numbers of families receiving these payments (less than 151,000 in each state). Across the 50 states and D.C., the average number of families who received payments was nearly 1 million.

Food was top priority among Americans who mostly spent advance credit on day-to-day-needs, debt payments

Food was the top priority among Americans who reported spending their latest advance payment mostly on day-to-day needs or debt payments; after food came utilities and telecommunications and clothing. Regarding food, 68.6% of people who said they used their payment primarily for day-to-day needs or debt reported spending in this category, followed by 45.9% on utilities and telecommunications and 39.2% on clothing.

Here’s a look at the top 10 in order of priority:

• Food (groceries, eating out, take out)
• Utilities and telecommunications (natural gas, electricity, cable, internet, cellphone)
• Clothing (clothing, accessories, shoes)
• Rent
• Paying down credit cards, student loans or other debts
• Vehicle payments (scheduled or monthly)
• Mortgage (scheduled or monthly)
• School books and supplies
• Child care (formal facility, paying family or caregiver directly)
• Transportation for school (bus service, metro, etc.)

Tumin notes that recent events contribute to the need to spend tax credits on essentials.

“The surge in inflation has been impacting food and utility costs,” Tumin says. “That may have contributed to Americans designating these areas a top priority for their latest advance payments.”

Loss of advance child tax credit payments hurts lower-income families the most

As to be expected, the loss of the advance child tax credit hits lower-income families harder than higher-income ones.

Almost 90% of respondents with a household income below $25,000 used this money to help meet their day-to-day needs or make debt payments, compared with just 46.2% of those earning more than $200,000.

Here’s a breakdown across household incomes:

• Less than $25,000: 88.6%
• $25,000 to $34,999: 89.0%
• $35,000 to $49,999: 83.8%
• $50,000 to $74,999: 79.8%
• $75,000 to $99,999: 73.9%
• $100,000 to $149,999: 71.0%
• $150,000 to $199,999: 59.8%
• $200,000 and above: 46.2%

4 things families can do now that they’ve received their last monthly child tax credit payment

To help families recover from the loss of monthly child tax credit payments, Tumin shared some tips for bouncing back.

• Create a monthly budget. It’s easier to get a handle on your finances when you know what’s going in and out, so a budget that details all expenses, savings and income can be helpful.
• Cut expenses. Once you have a budget in place, Tumin suggests reviewing your budget to find opportunities to cut unnecessary costs.
• Save for a rainy day. “Work to build an emergency fund in a savings account that can be used to help pay for unexpected expenses and avoid adding to high-interest debt,” Tumin says. Consider a savings account with a solid bonus offer to recoup some of what you might have received monthly if the payments were extended.
• Get out of debt. In addition to building an emergency fund, Tumin recommends focusing on paying off high-interest debt to clear up room in your budget.

Methodology

Researchers analyzed U.S. Census Bureau Household Pulse Survey data, fielded from Dec. 1 to Dec. 13, 2021.

The survey asked respondents whether they or anyone in their household received a child tax credit payment in the past four weeks. It then asked whether respondents mostly saved it, mostly spent it or mostly used it to pay off debt. Lastly, it asked about specific spending categories, including food, clothing and charitable donations.

MagnifyMoney analysts used the Census Bureau data to estimate the states where residents most urgently needed the additional child tax credit money. Researchers also looked at the states with the highest percentage of families who received payments.