Millions of Parents Not Living with Their Children Could Collect Child Allowance Checks
In their new $1.9 trillion stimulus law, Democrats temporarily converted the current child tax credit into a larger “child allowance” payable to parents regardless of whether they work or pay taxes. This has triggered debate about whether the law revives welfare as we knew it before those benefits were conditioned a generation ago on parents’ participation in work or training. But the fine print of the law reveals that these new benefits would certainly flow where welfare checks never went before — to potentially millions of parents who don’t live with their children, who could keep thousands of dollars in erroneous payments each year.
The rules of the child allowance are seemingly straightforward. Children under six receive $3,600 per year, while older children receive $3,000. Monthly shares could start flowing in July and would be sent regardless of whether parents work or pay taxes — nominally provided a child lived with them for more than six months in the year.
But not every child lives with the same parent for the same amount of time from one year to the next, meaning some payments — including “advance” monthly payments starting this year — could flow to the wrong parent if the child’s living arrangements recently changed. To address this issue, the child allowance offers an unusual answer: Parents or other adults receiving payments in error — because the child was not living with them — may keep up to $2,000 in mispayments per child, provided their annual income falls below $40,000 for single taxpayers, or slightly higher for other households.
The liberal Center for Budget and Policy Priorities (CBPP) described a typical scenario:
For example, a child’s father may have claimed the child in the prior year (2020) but the child may live with her mother in 2021. In this case, the father may receive advance payments for the 2021 Child Tax Credit but then learn that he is ineligible for the tax credit when he files his 2021 tax return because the child did not live with him this year.
Thus the father of a child under six might incorrectly receive a monthly $300 payment between July and December 2021, for a total of $1,800 in erroneous payments. If his income is low enough, he could keep the entire amount even though the child was not living with him. The child’s mother would then collect the $3,600 annual child allowance when she files her taxes in early 2022.
In effect, this policy provides parents with whom the child lives up to $3,600 and parents with whom the child doesn’t live up to $2,000, making the real maximum annual payment $5,600 per child, not $3,600 as advertised. Elevated payments would likely flow disproportionately to single-parent households in which changing living arrangements for children are more common, creating a new marriage penalty too.
Payments can’t be reduced for federal and state income taxes owed, recovery of other benefit overpayments, and past-due child support. That nonsensically means even parents who owe child support can keep erroneous payments instead of having these funds benefit their child.
Millions of children and families could be affected, especially if this policy is made permanent as Democrats intend. As the CBPP notes:
More than 3 million children in any given year live with a different adult than they lived with the prior year, we estimate using longitudinal Census data, and a large share have modest incomes.” If each resulted in a mispayment of even $1,000 that would send $3 billion per year to adults with whom children don’t live.
A Treasury Department newly tasked with paying tens of millions of child allowance checks will have limited resources, and perhaps limited will, to investigate questionable claims about children’s changing living arrangements designed to maximize payments. Such determinations are already a major problem in the Earned Income Tax Credit (EITC), in which a quarter of payments are erroneous, in significant part because the government can’t “authenticate eligibility because the data needed does not exist,” including related to “relationship and residency requirements.”
These new payments would surpass even the pre-reform welfare system, in which checks were reserved for parents with whom children lived. For the first time, millions of parents could receive monthly federal checks and be allowed to keep them even though their child is living elsewhere. That may spur children’s mobility, but not in the way policymakers usually intend.
Matt Weidinger is the Rowe Fellow in poverty studies at the American Enterprise Institute.
