The expanded Child Tax Credit was a lifeline for millions of families early in the COVID-19 pandemic.
The benefit went from $2,000 per qualifying child to $3,600 a year for children younger than age 6, and $3,000 per child for youngsters ages 6 to 17. More of the increased CTC also was refundable, meaning that if the available tax credit amount was more than the filer's tax due, the excess was sent to the taxpayer as a refund.
Even better, the American Rescue Plan Act (ARPA) called for most eligible households to get half of their qualifying CTC payment in advance. The IRS sent the money as monthly advance payments to taxpayers who had filed returns in prior years.
But the enhanced CTC program ended at the end of 2021. Now, efforts to again bump up CTC amounts are key sticking point in current Congressional tax discussions.
And part of that discussion likely will be on how the delivery process can be improved, since a just-released report found that the IRS miscalculated more than $10 billion in CTC payments.
GOP tax plan ignores CTC: Last week, the tax plan created by Republicans in control of the U.S. House cleared the Ways and Means Committee. Although it was dubbed the American Families and Jobs Act, the bill did not address the CTC.
Capitol Hill Democrats blasted the bill for ignoring the family-friendly tax break. They noted that in 2021, child poverty in the United States declined by nearly 46 percent, largely due to the expanded CTC. When it expired, child poverty spiked. Nearly 4 million more children were in poverty in January 2022 than just the month before.
The House GOP tax package is just the start of the legislative process. The Senate also must sign off, and the House proposal is not expected to move forward in the Democratic-controlled upper chamber. Plus, the White House has the ultimate say with its veto power.
Prior CTC distribution troubles: The latest tax talks and renewed CTC focus coincided with the release of a Treasury Inspector General for Tax Administration (TIGTA) report that didn't reflect well on how the Internal Revenue Service handled the coronavirus-era CTC.
The tax agency was given the added task of getting the increased CTC money into appropriate taxpayer hands (and bank accounts). It had some problems doing that, says TIGTA.
Essentially, the IRS estimated the amount of the credit to send in advance by using information from taxpayers' prior-year tax return filings. The agency also got additional data from online tools used by nonfilers who were eligible for the CTC.
Overall, the IRS issued almost 217 million Advance Child Tax Credit payments in 2021, which totaled nearly $93 billion.
However, the IRS may have wrongly granted as much as $10.5 million in Child Tax Credits in 2021, according to TIGTA's report, titled Review of the Reconciliation of the Child Tax Credit, that was released on June 14.
That $10.5 million wrongly paid CTC amounts is this weekend's By the Numbers figure.
Trouble truing-up payments: Taxpayers ultimately were required to reconcile the amounts they got when they filed their returns. If they didn't get the full CTC to which they were entitled, they could collect the balance. In some cases, taxpayers who got too much had to repay the overage.
TIGTA's review of that reconciliation process focused on tax returns processed through May 5, 2022. The IRS watchdog found 6,833 taxpayers who potentially received $10.5 million in excess Child Tax Credits because IRS personnel incorrectly resolved error conditions that allowed the taxpayers to collect more credit than they were eligible to receive.
On the other side of the CTC equation, TIGTA found 105 taxpayers who didn't receive all of the CTC for which they qualified. That came to an estimated $139,000 in credits not received.
New tax in difficult time: In the IRS defense, I must say that the agency was given an imposing task during an extraordinary time. No one should expect it to do what it did without making any errors.
But such consideration is not part of TIGTA's job. It concentrates on how the IRS executes its many tasks.
And TIGTA's latest report follows one issued last October where the oversight office found that the IRS erroneously issued AND didn't issue CTC payments.
TIGTA then found 3.3 million advance CTC payments went to 1.5 million taxpayers who weren't eligible to receive the money. It also discovered more than 4 million taxpayers who were eligible for the advance payments didn't get all of them as planned.
If Congress does ultimately decide to increase the CTC, the TIGTA report — which included seven recommendations, four which the IRS agreed with fully and one it signed off on partially — can help the agency better deal with any credit change and distribution.
You also might find these items of interest:
- 6 family-friendly tax credits
- 10 states have their own child tax credits
- 2.9 million children escaped poverty in 2021 thanks to expanded Child Tax Credit
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John Wancheck
The headline for this advance CTC is incorrect – and damaging. $10.5 million – not billion.
“The IRS watchdog found 6,833 taxpayers who potentially received $10.5 million in excess Child Tax Credits because IRS personnel incorrectly resolved error conditions that allowed the taxpayers to collect more credit than they were eligible to receive.”