As Democrats tout the start Thursday of advance monthly payments of a tax credit for parents of children up to age 18, some advocates for taxpayers are concerned about issues of accessibility and confusion around the program intended to reduce child poverty.
After receiving a series of pandemic relief checks already, recipients may not realize that the new monthly payments they’ll get through the end of this year mean a lower refund or bigger tax bill in 2022. And Internal Revenue Service tools are posing problems for households, tax experts say, including difficulty in navigating the program website on a smartphone, which is also required if a taxpayer wants to opt out.
“The concern for me is that signing up is not easy for the most vulnerable people, and it is also not easy for people who do not want to receive the advance payments to unenroll,” said Nina Olson, executive director of the Center for Taxpayer Rights and a former national taxpayer advocate, an independent post within the IRS.
Olson said that while there’s been an unprecedented push from officials and advocacy or community groups to get information out on the expanded child tax credit, the quick timeline to get it in place has contributed to concerns.
Parents with children who filed tax returns in 2019 or 2020 or who signed up as a nonfiler to get a pandemic relief payment last year are set to automatically receive up to $300 per child on Thursday, the first of six installments through the end of 2021. Recipients can opt out of the early payments, and people who don’t file tax returns can still sign up to start receiving monthly payments in August. The early checks would amount to half the total credit, and the remainder will be included in tax returns next year.
Democrats’ March coronavirus relief package temporarily expanded the existing child tax credit from $2,000 for children up to 17 years old to $3,000 per child for kids age 6 through 17, and a $3,600 per child credit for kids 5 and under. The law made the credit fully refundable in most cases for 2021, meaning those who owe little or nothing in federal income taxes can still receive the full amount.
The full credit is available to married couples filing a joint return with modified adjusted gross income of $150,000 or less, heads of household with income of $112,500 or less and single filers or married people filing separately with income of $75,000 or less. It phases out gradually for higher-income filers. About 88 percent of U.S. children will be covered by the expanded credit, according to the Treasury Department.
Congressional Democrats and the Biden administration are aiming to amplify information on the payments with the help of community groups and tax organizations. The IRS has rolled out tools that allow recipients to check their eligibility, manage their payments and submit information to get signed up if they’re not required to file a tax return because their income is low.
These tools have been difficult for people to use, particularly because the IRS is trying out a new identification system that requires two-factor authentication and users to submit a photo of a government-issued ID, Olson said. She said the issues are typical of IRS technology and exacerbated by the fast timeline for the agency to roll out payments.
Confused with relief checks
Olson is also concerned that the automatic monthly payments may be confused with the three rounds of payments sent out during the pandemic under relief packages starting in March 2020.
Unlike those checks, the monthly child tax credit payments would mean a lower tax refund next year, which could cause trouble because some people rely on the refund amount they expect each year to make purchases or pay bills, Olson said. The advance payments are meant to help those who may need the money sooner.
Cari Weston, director for tax practice and ethics at the American Institute of CPAs, said that she’s concerned about confusion due to recent relief payments and that for people relying on their refund next year, a lower amount than they expect could be devastating. She’s expecting an outcry when tax filing season begins in February because refunds won’t be what some people expect.
Some taxpayers were surprised they owed the IRS or got lower refunds in 2019, after adjustments to tax withholding following the Republican overhaul of the tax code in 2017.
The advance payments could also create confusion for parents who alternate claiming their child on their tax returns. If the wrong parent gets early checks this year, they might owe it all back to the IRS in 2022.
“Everyone is trying really hard to message everything they need to,” Weston said. “It’s not about the lack of messaging. It’s about the lack of consumer understanding.”
In particular, there’s concern about reaching people who don’t file tax returns, who would need to sign up to get the payments if they didn’t for stimulus checks last year, said Roxy Caines, who promotes the child tax credit and similar programs for the Center on Budget and Policy Priorities, a liberal think tank.
“It isn’t one approach, so this is just going to be something that takes more time,” Caines said. “It’s really important to recognize that this is an effort where it will be more of a marathon rather than a sprint to reach nonfilers.”
The Biden administration will work to smooth wrinkles in the implementation of the child tax credit and agrees there could be improvements, according to a senior administration official, who said outreach to enroll more eligible Americans and improvements to IRS tools will continue.
The official, who spoke to reporters on condition of anonymity Wednesday night, said that with Biden’s goal of extending the credit, efforts to improve implementation will continue. Planned fixes include making the nonfiler portable easier to use on mobile phones.
The official said some Americans are also hesitant or resistant to signing up, so while a more accessible website will help, outreach through trusted community groups to alleviate fears will also be key.
Democrats are pushing their own messaging on the expanded child tax credit this week, circulating IRS tools and holding events at virtual events and town halls lauding the start of monthly payments. The Democratic National Committee on Wednesday hit at Republicans for voting against the $1.9 trillion package that included the expanded tax break.
Several lawmakers acknowledged flaws in IRS tools during a virtual news conference Wednesday, saying they plan to continue public outreach as monthly payments get underway. Rep. Suzan DelBene, a member of the Ways and Means Committee, encouraged people to let lawmakers know about any problems or questions with the process so they can pass along feedback to the IRS, including reports of problems with using the nonfiler portal on mobile devices.
“We want [the IRS] to build a solid infrastructure because we want this to be permanent,” the Washington Democrat said, “and so we want to make sure we are making these long-term investments.”
The White House has proposed extending the expansion of the credit through 2025 and making it permanently fully payable for people who pay less in taxes than its value. That could be included in a package that Democrats are aiming to pass through the budget reconciliation process. Senate Democrats announced agreement Tuesday on a $3.5 trillion spending target for that plan.
Republicans have taken issue with the details of the expanded credit, including concerns about greater fraud with the monthly payments. Nebraska Rep. Adrian Smith, the ranking member on the Ways and Means subcommittee that handles taxes, said the way Democrats expanded the credit with changes midyear is creating problems.
“Regardless of how you feel about the underlying policy, asking the IRS to implement a policy change midyear which requires them to start sending out millions of monthly checks on top of their existing customer service backlog is a recipe for disaster,” he said in a statement. “Not only do most Americans probably not understand that this will impact their year-end tax liability, but for those who do and want to unenroll the process is extremely difficult and time consuming.”
The IRS’ advice for recipients includes that they may want to opt out of early payments and can for any reason. About 1 million individuals have opted out so far, according to the senior administration official.