Internal Revenue Service Commissioner Charles Rettig indicated the IRS is already working to implement a new program for an expanded Child Tax Credit under the American Rescue Plan by July 1, but left open the possibility there may be delays.
Rettig described the steps the IRS is taking to set up systems for administering the expanded benefit for families during a Senate Finance Committee hearing Tuesday. At a hearing last month before the same committee, he had suggested that the IRS would need more flexibility and might not be able to provide the expanded payments on a monthly basis, but would disburse them periodically. However, during Tuesday’s hearing, he sounded more optimistic about launching the system.
The American Rescue Plan Act, which President Biden signed into law last month, significantly expands the Child Tax Credit in hopes of reducing child poverty by supplementing the earnings of the families who receive the tax credit. The law increases the amount of the Child Tax Credit from $2,000 to $3,600 for children under the age of six, and $3,000 for other children under the age of 18 through the rest of the year. Children 17 years old and younger, as opposed to 16 years old and younger, will now be covered by the credit, which has been made fully refundable, allowing low-income households to receive the full benefit no matter how much they earn. However, the benefit is a major undertaking for the IRS, which is still in the midst of tax season and dealing with a number of new tax laws that Congress has passed since last year in response to the COVID-19 pandemic. Some lawmakers questioned Rettig about the IRS’s ability to implement the benefit.
“It’s clear that setting up periodic advance payment and associated infrastructure will be a significant undertaking at your agency,” said Sen. Charles Grassley, R-Iowa. He asked how much it would cost, how many people would be needed to work on it, along with other details.
“We have to create an entire new structure for the Internal Revenue Service,” said Rettig. “We are not historically a benefits delivery federal agency, but we’re setting that up. The cost for that program is $391 million. Right now it will be — and this is my educated guess — a minimum of 300 to 500 people, which includes folks that will have to handle the phone service, because we’ll have to increase phone service. The Taxpayer Advocate Service will get additional touch points.”
The IRS Criminal Investigation unit will also need more resources to deter fraudsters, he noted. Rettig thanked Congress for delaying the implementation date until July 1, as opposed to an earlier date for getting the program up and running. “That’s very meaningful to the Internal Revenue Service because, as you know, we have filing season, normally April 15, and we moved it to May 17,” he added. “But we also have the third round of Economic Impact Payments. It would have been extremely difficult for the IRS to launch a CTC program anytime before July 1. It’s a challenge to do it July 1, but it would have been really difficult.”
The IRS is in the process of setting up working groups to determine what it needs to launch an online portal for the new benefit where families will be able to update their reporting circumstances for the year so they can begin receiving the monthly checks. The working groups will also deal with the necessary guidance and policy changes, and they’re consulting with the IRS chief counsel on what they’re able to do and not do within the scope of the law. The IRS also has working groups within its IT department working on authentication levels to safeguard against fraud. “As you can imagine, as a risk averse agency, every time we open some system up, it becomes a risk issue for the agency, and we’re not going to allow undue risk,” said Rettig.
The working groups aim to have the systems set up in time to start the program. “We put together working groups within our council, within our IT, within Wage & Investment to determine requirements, to determine legal abilities, to determine our ability to do certain things, what’s the most user friendly path to launching,” said Rettig. “We fully anticipate to launch by July 1, which is the statutorily mandated date.”
The IRS expects to hire an additional 1,000 customer service representatives to be ready this summer with the funding provided in the American Rescue Plan for implementation of the child tax credit changes and to address potential call volume increases. It is currently estimating a level of service on phone calls for the 2021 filing season that’s significantly less than where it wants to be, according to Rettig’s written testimony, and that may fluctuate further based on increasing call volumes.
Sen. Mike Crapo, R-Idaho, the ranking Republican on the committee, raised concerns about the program. “The IRS must assure us that this implementation will not mean putting filing season on the back burner, nor rushing to get the payments out before we have accurate information from taxpayers regarding eligibility,” he said during his opening statement. “To date, absent any contrary indication from the IRS, I am left with the impression that the aggressive July 1 payment deadline imposed by Congressional Democrats will be challenging to meet by an IRS staff that is already stretched thin, without cutting corners or reassigning staff who should be focused on processing tax returns. If Congressional intent was really to get these advance payments out, at all costs, as soon as possible, then the logical approach would have been to simply provide an extra bonus in the Economic Impact Payment of each qualifying low-income child. Congress could have put those increased payments in the hands of those parents a month ago, with that approach. Instead, the legislation created a complicated new program for these periodic advance payments, with a clearly-stated goal of making this temporary program permanent. With that in mind, fully setting up the required online portal, and equivalent secure mechanisms for those without internet access, in order to ensure that any advance payments issued are both accurate and desired by parents, must be considered at least as much of a controlling priority as the requirement to begin issuing advance payments this summer.”
Despite those challenges, Rettig is cautiously optimistic that the program would be ready in time and would be able to dispense monthly payments. Sen. Sherrod Brown, D-Ohio, asked him, “Is the IRS on track for monthly payments starting in July?”
“We are,” responded Rettig. “If we end up not being on track for some unforeseen situation, we’ll advise you and the committee.”
The credit amounts will be made through advance payments during 2021, according to a Treasury Department
The expanded credit promises to be a boon for millions of families. “This is just huge for folks with children,” said Jim Guarino, managing director at Baker Newman Noyes, a Top 100 Firm. “First of all, we’ve got an expanded credit. The credit now is up to $3,000 from the original $2,000. So we’ve got an extra $1,000, and in fact for anyone who has a child under the age of six, there’s an additional $600. So for somebody who has a child under the age of six this year, the Child Tax Credit could be as high as $3,600. I think that’s big. The change in the credit now covers 17 year olds, so as long as you’re under the age of 18, you qualify. The old rule was you had to be under the age of 17. So parents now have an extra year that they can include for children that fall into that age bracket.”
The timing will help deliver aid to families who are still struggling in the midst of the pandemic.
“The government is doing what it can to get money into folks’ hands ASAP,” said Guarino. “The way I understand it is that up to one-half of the credit is going to begin to get paid to eligible taxpayers beginning in July. Basically, every month from July through December, taxpayers are going to receive up to one half of their eligible credit. For somebody who’s got one child who’s under the age of six, they would qualify for $3,600 of credit. What that means is that $1,800 of that credit will get paid monthly beginning in the month of July. Basically these folks are going to see a check for $300 a month for the last six months of the year. I just think that’s awesome.”
