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The money from the expanded Child Tax Credit, coupled with other benefits in the $1.9 trillion American Rescue Plan, might cut child poverty in half according to some estimates — but a family needs to access the cash first.
A tax return may be one major way to help families, and the effort is on to make sure people who do not typically file taxes get all the money that’s earmarked for them and their children when they may need it most.
For many people, an income-tax return is the last chance to access missed-out 2020 stimulus check money. The filing deadline is now May 17, but people can file for extensions through Oct. 15. The IRS is scheduled to distribute periodic payments under the enhanced Child Tax Credit from July 1 to Dec. 31.
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An income-tax return is the last chance for missed-out 2020 stimulus check money for many people.
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The expanded credit “is a really thrilling, really watershed moment,” said Stacy Taylor, head of policy and partnership at Propel, a company creating the Fresh EBT app, where 4 million households now check their monthly food-stamp balances.
But the risk of some people missing the benefit is real, she added. Some 57% of app users said they have not filed 2020 taxes as of early March and 47% of participants in an earlier Propel poll said they did not file 2019 taxes, Taylor said.
“I don’t think the Child Tax Credit’s expansion would do what it’s intended to do if it doesn’t reach the most income-constrained households,” she added. The app offers guidance about the credit, and refers users to free tax preparation in their locality.
Under the American Rescue Plan enacted earlier this month, the Internal Revenue Service will pay a household up to $3,600 for every child under age six. It will pay $3,000 for children age 6 through 17.
IRS will issue periodic payments directly to families
The IRS will issue periodic, recurring payments directly to families beginning later this year in a timeframe between July and December.
The boost is for one year, up from the $2,000 maximum credit. The modification erases a $2,500 earned income threshold for eligibility and it makes the credit fully refundable.
An estimated 6.7 million kids, disproportionately in minority communities, miss the money because their families make too little, according to research. An additional 17 million kids currently do not get the credit’s full help because, until the change, it was partially refundable, the same study said.
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An estimated 6.7 million kids, disproportionately in minority communities, miss the money because their families make too little.
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Many parents and their children stand to gain a lot. But last week, IRS Commissioner Charles Rettig said the tax agency needs to know about these people first.
“Even if they don’t have the income levels, we need the return information,” he said.
A single person under 65 making less than $12,200 a year does not have to file a tax return and the same goes for a married couple under 65 making less than $24,400 a year.
The IRS will create an online portal similar to the non-filer portal people used to sign up for stimulus checks if they didn’t file taxes. But the online portal is where people can “opt out” of the recurring payments, Rettig said.
(A Treasury Department explainer says the portal can be used to “update relevant data for mid-year payment adjustments” like the birth of a child.)
“It might be a challenge to get to monthly [payments] right out of the box,” he noted. “But we’re focused on trying to get these payments out to people in a meaningful manner, in a meaningful timeframe.”
Between the Child Tax Credit and the EITC, “there’s an awful lot of money being left on the table, or potentially,” Rep. Dwight Evans, a Democrat from Pennsylvania said to Rettig.
“It’s not just money, you know, it’s survival for people. It’s self-respect, it’s self-confidence, it’s school, it’s child care, it’s elder care,” Rettig responded.
Evans is emphasizing the importance of filing taxes in an upcoming telephone town hall and newsletter, a spokesman told MarketWatch.
Who might be missing out?
The number of people who aren’t filing taxes because they make too little money is not known, said Elaine Maag, a principal research associate at the Tax Policy Center.
One way to estimate how many is to look at participation rates for the Earned Income Tax Credit, said Maag. The EITC is an important anti-poverty credit geared towards low- and moderate-income working families.
Four in five eligible people claim it according to 2017 data from the IRS and Census Bureau. That’s the majority, but one tax expert previously said it’s still “millions of dollars” going untapped.
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Up to 8 million people could be missing out on the initial $1,200 stimulus check, according to the Biden administration.
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Two rounds of stimulus checks have brought more people onto the IRS’ radar, Maag noted. Taxpayers filed approximately 169 million tax returns last year, which included more than 8 million returns just to claim stimulus checks, the IRS’ Taxpayer Advocate Service noted.
As those payments went out, the IRS held onto new information about addresses and where dependents lived, Maag said. “Any other year, I would be sweating bringing non-filers into the tax system. In this year, it should be a smaller problem than at other times.”
Smaller problems may still be big numbers. For example, up to 8 million people could be missing out on the initial $1,200 stimulus check, according to the Biden administration.
It might be the case that people ultimately can register for the payments through the portal, she said. There’s a lot of pressure and expectation on the IRS to distribute the payments “as accurately and comprehensively as possible, and the IRS is not immune to the pressure,” Maag said.
Still, it’s an especially good idea to file a return rather than betting a different IRS approach will emerge, she said.
The sooner the IRS has that tax-return data, the sooner it can process it and have it on hand for the Child Tax Credit payments, Maag noted.
‘How do you reach these folks?’
If someone is due a refund or entitled to claim tax-credit benefits, the person has three years to claim it, IRS rules say. That might cold comfort when the tax money could help a lot to make next month’s rent.
“Our biggest concern is how do you reach these folks and, number two, when you do reach them, how do you get them through the tax filing process,” said David Newville, senior program director for tax benefits at Code For America, a non-profit organization trying to connect people government services.
The Fresh EBT app links to Code For America’s GetYourRefund.org website, which refers users to the IRS’s Volunteer Income Tax Assistance programs. These programs prepare taxes for people generally making up to $57,000.
Code For America is advertising the importance of filing taxes this year, and it’s partnering with companies like Propel to spread the word.
Back at Propel, Taylor is planning to raise more awareness on the credit, including a tool that will help people see how much money they can get. She said questions from Fresh EBT users about the enhanced Child Tax Credit are pouring in. People want to know if claiming it will affect their benefit eligibility (it will not Taylor says) and why they could be getting the money now if they were not eligible before.
When it comes to the details on the bolstered credit, Taylor said, “there’s just lots of questions and there are not as many answers because it is still being developed.”
