NEW REPORT | Benefits of Recurring Tax Credit Payments, Lessons from the Chicago EITC Periodic Payment Pilot and Implications for Illinois

Cover of the report on benefits of recurring tax credit payments.

Executive Summary:

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 pro-vide 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 Chi-cago 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 pay-ments. Thus, it provides a window onto the likely impact of the advance CTC.