The expansion of the Children’s Tax Credit is considered to be one of the most significant tax changes in President Joe Biden’s $ 1.9 trillion American Redemption Plan, given the measure will compensate monthly checks later this year for millions of families. But the IRS is warning that families may experience delays in receiving checks as they strive to send out stimulus checks and deal with their current tax season rates.
The bill reformed the Child Tax Credit (CTC), expanding the $ 2,000 annual benefit to up to $ 3,600 per child, including more low-income families in the tax benefit – and distributing half the money in monthly cash payments. These monthly payments are scheduled to start in July and last through December, and could provide a measure of financial stability for millions of families as the economy begins to recover from the pandemic.
“It can be a challenge to enter the monthly market as soon as it comes out of the box,” IRS commissioner Charles Rettig told lawmakers on Thursday. He added that the tax agency “would do the best”.
The IRS is under enormous pressure due to the pandemic and the additional workload of the last round of stimulus checks. On Wednesday, he reported delivering 90 million stimulus checks to eligible and dependent adults, with plans to issue another million in the coming weeks. At the same time, it is in the middle of the ongoing tax ordering season, and this week it postponed the deadline for filing tax returns until May 17 of its traditional April 15 deadline.
This delay in filing may put the Child Tax Credit term at risk, Rettig said. He added that he is not in favor of delaying the tax deadline because it will give the IRS less time to create a new online portal for the Child Tax Credit.
“Now we have a month less to do the development,” said Rettig. “The same people who do our income tax processing, IT departments, are the people who need to develop this portal. Therefore, I don’t have the resources to dedicate myself to this portal until the end of the filing season, which is December 17th. May.”
Rettig did not provide many details about the portal. But it could be similar to the website that the IRS created last year for the distribution of stimulus checks called “Get My Payment”, which the agency reopened this week to allow people to track payment for the third round of stimulus checks.
How Child Tax Credit Works
Prior to the expansion, the CTC granted a tax credit of $ 2.00 per child, which families could claim on their annual tax return. Typically, families would receive the money through their tax refunds.
But not everyone qualified for the full CTC – and it was mainly low-income families who did not receive full payments because of income requirements. About 40% of the tax credit went to families with incomes greater than $ 100,000, while only 15% went to families with incomes less than $ 30,000, a Brookings study found. Previously, only those who paid income tax were eligible for the CTC, which left out many very low-income people.
The American Rescue Plan expands the credit to include low-income families, but it also has an income limit of $ 75,000 for singles and $ 150,000 for couples. Families earning over the income limit will still receive the $ 2,000 tax credit. But the millions of families earning below that threshold will receive the expanded credit, which is $ 3,600 for each child under 6 and $ 3,000 for each child between 6 and 17 years old.
The tax credit will be paid in monthly payments from July to December, the other half being claimed in the tax return. In practice, this means that a family of four with two children under the age of 6 will be entitled to $ 7,200 in tax credits, with half that amount paid monthly in the second half of the year – or $ 600 per month for six months.
This monthly payment could be a “baby step towards universal basic income”, an expert told CBS MoneyWatch earlier this month.
About 4 million children will be lifted out of poverty by expanding taxes, according to the Budget and Policy Priorities Center.
Rettig said he expects the IRS to be able to meet the requirement to start sending checks in July. He also asked everyone to file an income tax return this year, including low-income people who would not otherwise be required to file an annual return, to make sure the IRS is aware of them and can direct payments to they.