Child tax credit checks could come as a surprise to some
The Biden administration is preparing to send money to millions of Americans — including to some who may not want it.
Its plan to have people claim a portion of their child tax credit each month, starting in July, is primarily designed to provide a steady stream of cash to low-income Americans.
But the administration intends to automatically enroll everyone who takes the credit — some 50 million families, earning up to $400,000 — in the monthly payment program unless they opt out.
That may come as a surprise to many, and not a welcome one — particularly to people who aren’t low-income — because it could come back to bite them at tax time.
“They might have a smaller refund in the spring or they might end up owing some of this money back,” said Elaine Maag, an expert on the initiative at the Tax Policy Center.
“That will probably annoy some people.”
It’s also likely that at least some low earners may not want to participate because they prefer to receive a lump sum at tax time.
That underscores how the decision on whether to participate in what is a signature initiative of the administration can be more complicated than it appears — turning on people’s individual circumstances as well as their personal preferences.
The number of people receiving the payments will be closely watched as the initiative unfolds. The IRS says it will have instructions on how people can opt out by the end of this month.
The administration is now encouraging people to sign up, as the government gears up to distribute the first round of payments on July 15. Subsequent payments will go out around the 15th of each month.
The IRS has sent millions of Americans letters alerting them to the program, a special Web site on the initiative went live this week and the White House has produced flyers for supporters to distribute.
“We need to spread the word about the child tax credit and how important it is for families in order to build public support for CTC and its extension and ensure everyone knows about it,” said Gene Sperling, a White House aide, in an email Tuesday night to supporters.
The administration will send half of people’s total child tax credit out over the next six month, with taxpayers collecting the rest next year when they do their taxes. The program is temporary though Democrats are pushing to make it permanent as part of their next big spending package.
The payments are primarily designed to help low-income people with unexpected expenses throughout the year, and they will get the biggest increases in payments.
As part of their last coronavirus stimulus package, Democrats increased the maximum credit to as much as $3,600, from $2,000, for couples earning up to $150,000. At the same time, they dumped provisions that had linked people’s payments to whether they’ve worked, which prevented millions of the least wealthy from claiming the credit.
The plan is projected to slash the number of children living in poverty.
While Congress limited the number of people who can qualify for the newly enlarged credit, lawmakers required Treasury to enroll all child tax credit beneficiaries, regardless of income, in the monthly payment program unless they opt out.
The child tax credit is the second most widely claimed individual tax break in the code.
The decision on whether to take the monthly payments, rather than wait until tax time, is relatively straightforward for those who don’t make enough money to owe federal taxes — for them, the question is essentially whether to take the money now or later.
Some though will likely prefer lump sum payments.
That’s what has happened in an analogous pilot program in Washington D.C. where a consortium of private foundations is distributing $5,500 in cash to up to 500 low-income households.
Asked whether they want the entire amount at once or to receive it piecemeal in monthly payments, the overwhelmingly majority chose the former, said Maag, who is working with the initiative.
That could be a consequence of the coronavirus pandemic, she said.
“That’s in the middle of a pandemic where people are facing extreme hardship so it may have been that they already had bills piled up so they wanted a larger payment,” said Maag.
Still, she said: “It’s not exactly clear to me whether low-income people will ultimately decide to have one payment or many payments.”
For people further up the income ladder, who make enough to pay federal income taxes, the case for taking the monthly child tax credit payments may be less clear.
About 20 percent of families receiving the credit make too much money to qualify for the newly expanded credit — they will continue to receive the underlying, pre-2021 credit, doled out in monthly installments. A couple with two kids making $300,000, for example, can expect to receive $333 beginning next month.
But they may not need the money or even realize that it’s coming. And taking those payments now means they won’t be able to use it later to reduce their tax bills next filing season.
“If you’re above those income thresholds and you’re not getting any additional child tax credit, then maybe you don’t want to mess around with it,” said Maag.
