IRS chief expects new child payments to start this summer
It’s a strain, but the head of the IRS expects to meet the July 1 deadline in the new pandemic relief law for starting a groundbreaking tax program aimed at reducing child poverty. That means new advance monthly payments of as much as $300 per child could begin flowing to lower-income families this summer.
In testimony at a Senate hearing last week, IRS Commissioner Charles
Rettig said it will cost nearly $400 million and require the hiring of
300 to 500 people to get the new monthly payment system and electronic por- tal in place for the child tax credit.
“The IRS will be working hard to deliver this program quickly and efficiently,” he said.
“We have to create a new structure,” Rettig said, adding that the tax-collecting IRS is “not historically” a benefits agency.
The IRS, which has suffered budget cuts over the past decade, has been further burdened by the pandemic and the task of sending out hundreds of millions of economic stimulus payments in three rounds.
In embedding the expanded child tax credit in the $1.9 trillion rescue legislation enacted last month, Democrats sought to provide support to families affected by the coronavirus pandemic and parents forced to cut down on work or give up jobs to take care of children after losing
access to childcare. Democrats view the tax change as an opportunity to address income inequality worsened by the pandemic. According to some academic estimates, it would reduce the number of children living in poverty in the U.S. by more than half.
It temporarily increases the existing child tax credit from a maximum $2,000 a year per child to $3,000 for each child aged 6 to 17 and $3,600 for children under 6. It offers the option for families to receive advance monthly payments, rather than waiting for a lump sum based on the parents’ tax liability. The change will be in effect for a year under the rescue law; Democratic lawmakers have said they want to make it permanent.
That has sparked criticism by Republicans, who have criticized the initiative as an expansion of the welfare state that removes the incentive for parents to seek work. They are expressing concern about fraud in the program and asking what the IRS will do to crack down on improper payments.
The new child tax credit “is not targeted to pandemic relief, and risks the loss of billions of taxpayer dollars in fraudulent and improper payments,” Rep. Kevin Brady of Texas, the senior Republican on the House Ways and Means Committee, wrote in letters to Biden administration officials.
About 80% of families with chlldren are expected to qualify for a tax cut due to the new rules, with outsized benefits for lower earners. The bottom 20% will get an average federal tax cut of $3,270.
Under prior rules, taxpayers could claim a child tax credit of up to $2,000 per kid under age 17. The American Rescue Plan raises that to $3,600 for kids under age 6, and to $3,000 for older children. The legislation also expands the age of qualifying children to allow a credit for 17-year-olds.
The full tax break would be available to individuals who earn up to $75,000 a year, heads of household who earn up to $125,000 and married couples filing a joint tax return who earn up to $150,000. The credit phases out for higher earners.
U.S. Sen. Charles Grassley, R-Iowa, said he was concerned that the new tax benefit will remake the IRS’ role into a “social welfare-oriented” agency.
Rettig, as the independent head of the IRS responsible for neutrally administering the benefit, isn’t taking a position with either side. While acknowledging the possibility of some fraud in the program, he said the IRS will be fully able to detect and weed it out.
In addition, he told the senators, the new electronic portal for processing the child tax payments “will be as user-friendly as possible.”