How to make the child tax credit more accessible

Families that don’t file taxes have struggled to access the child tax credit. A more automatic program could help them out.

The first of the 2021 child tax credits hit parents’ bank accounts in July — but not for everyone. For many of the parents who need it most, accessing the money may be more of a struggle.

That’s because the IRS — an agency that knows little about the lowest-income Americans, who often don’t file taxes — has been tasked with distributing the money, up to $300 per month per child.

On July 15, the day payments first went out, the IRS said it sent $15 billion to 35 million families, 86 percent of which was sent via direct deposit. That suggests that the vast majority of initial recipients were from families who earned income and filed taxes, many of them middle- or lower-middle-income parents whose names, addresses, and bank accounts are on file from tax returns.

More than 10 million children live in poverty, according to 2019 data from the US Census. Of those, the People’s Policy Project estimates that about 7 million live in non-filing households. (Because these families are, by definition, somewhat difficult to track, estimates vary: The Census Bureau says that 36 percent of children in poverty are from families that did not file taxes in 2019, including 55 percent of children in families in deep poverty.)

Most of these families haven’t signed up to get government stimulus checks, either, effectively leaving thousands of dollars from the government on the table over the past year. The IRS gathered information on an additional 720,000 children in non-filing households where the parents registered to receive stimulus payments.

But that still leaves millions of children whose parents are eligible for the child tax credit (CTC) but who are not on track to receive it.

Experts say the problem is fixable. But it will require creativity from the IRS, Congress, and tax help partners on the ground.

The government will need to improve its website, partner with state and local groups, and redouble its outreach to meet families where they are, either at schools or at state benefits agencies. In the long term, the best solution may be to make the child tax credit as automatic as possible, through solutions such as a sign-up at birth or distribution as an allowance.

So many people are covered, and the amount of the credit is so significant, that economists have estimated the money could cut child poverty by 40 percent. But for that to happen, the lowest-income families have to be able to actually receive it.

The problems start with the IRS itself

One big problem: The IRS does not think of itself as a benefits agency — because it isn’t one.

Federal agencies like the Social Security Administration — and state agencies that dispense federal funds like the Supplemental Nutrition Assistance Program (SNAP) or Temporary Assistance for Needy Families (TANF) — are set up to process claims quickly and streamline enrollment. (At least in theory; whether they work that well in practice is more complicated.)

But the IRS is fundamentally a collection agency. It knows how to take, and how to refund if it takes too much, but when it comes to doling out benefits like stimulus checks and child tax credits, the onus is on individual Americans to advocate for what they are owed if the agency doesn’t already have their information.

That’s the case for many poor families. In 2020, a single parent with a dependent child had to earn at least $18,650 to be required to file taxes. Some households with lower incomes file anyway in order to claim the earned income tax credit, but about 20 percent of households eligible for the credit never claim it, and the very poorest families are not eligible for the full amount.

When it comes to receiving child tax credits, the IRS offers a portal for non-filers to submit claims. But the system is not mobile-friendly, and thus far, it is only offered in English. The IRS recently released step-by-step guides on using the non-filer tool in six languages, but instructions for accessing them are only available in English and Spanish.

Tax policy experts and community tax help groups noted both of those issues are barriers for their clients, who have had trouble navigating the portal.

“Right now, it’s a system that works really well and is super straightforward for moderate-income and upper-income families, and doesn’t work very well for lower-income families,” Elisa Minoff, a senior policy analyst at the Center for the Study of Social Policy and a leader of the Automatic Benefit for Children Coalition, said. “The North Star should be making this as automatic as possible so families don’t have to take affirmative steps to get the support they need.”

Non-filing families can struggle for a number of reasons — caregivers may be unaware that they qualify for the benefit or unable to figure out the technological component; families may not speak English or have consistent non-mobile internet access or, frankly, time in the day to figure the system out.

Graham O’Neill is the director of partnerships at the Campaign for Working Families, an organization that helps low-income people in Pennsylvania and New Jersey navigate the tax system and claim benefits. One of the biggest problems his clients have, he said, is when someone else — often due to a formal or informal shared custody arrangement — has already claimed the child as a dependent. They can appeal to the IRS, but doing so takes months.

“Life is complicated, especially if you’re a low-income person,” O’Neill said. “There’s a whole lot of situations in life that don’t fit neatly into the way the tax code structures a family.”

Kori Hattemer, the director of financial programs at Foundation Communities, a similar organization based in Austin, said she has clients who filed tax returns for the first time in 2020 in order to access stimulus benefits but have been unable to access them because of an IRS backlog. Many families have come needing help with completing the online portal.

“I feel like there’s a pretty low awareness about it,” Hattemer said. “If they make it permanent and it’s around for several years, it will become part of what people know and understand. But it’s very different than what people have done in the past.”

How can we make the child tax credit more accessible?

There is still time to close accessibility gaps, and to get distribution of the child tax credit right, or as right as possible.

While most parents will receive their credits in monthly installments of $300 per child for six months this year, and for an additional six months in 2022, parents can also receive the entire child tax credit during tax filing season if they sign up between now and then. That gives the IRS about nine months to bring non-filers into its systems.

Democrats are also working on a proposal to extend the child allowance, and they will have some benefits of hindsight as they do so. Filling the gaps that appear to be excluding non-filers can be done, but will take an all-hands-on-deck approach, involving Congress, the IRS, and local tax help groups.

One relatively easy solution would be to increase Volunteer Income Tax Assistance (VITA) funding so that local organizations can be as well-resourced as possible to help non-filer families. Democratic Senate aides told Vox that’s a solution they are exploring with the Senate Budget Committee.

VITA organizations can reach non-filers in ways the federal government might struggle to; for instance, O’Neill said his organization is working with the Pennsylvania state government to do child tax credit outreach at state benefit agencies, like TANF offices. Having in-person signups in the waiting rooms of SNAP, TANF, or WIC offices would put less onus on non-filer families.

Other researchers have suggested providing federal funding to have information or sign-ups at pediatricians’ offices and schools — particularly during back-to-school season.

Regardless of where contact with non-filers happens, Kris Cox, the deputy director of federal tax policy at the Center on Budget and Policy Priorities, said the IRS and local VITA partners need to be on the ground.

“The non-filer portal is really important for people who can navigate that type of form, but we know that there are families who will face barriers, whether that’s language, technical, fluency, disability, other things,” Cox said. “In-person assistance will be crucial.”

One idea advocates have thrown out is sending out federal navigators, much like Congress did with the Affordable Care Act, to get families registered. The IRS maintains zip code files to track who is receiving child tax credits, so navigators could be sent to areas with low disbursement rates. Another way to get more federal officials on the ground might be to increase funding for existing IRS tax system care centers, many of which have been shut down or are understaffed.

A third fix would be far less expensive but could require rethinking data privacy laws: mandating communication between benefits agencies like the Social Security Administration and the IRS.

A lot of non-filer families’ information is out there — it’s just in benefit agencies that do not communicate with the IRS, largely due to strict data privacy laws safeguarding tax information. But if those laws could be loosened slightly, or if benefit agencies could give families’ information to the IRS without receiving any information in return, then the IRS could send notices or register those families.

Senate Democratic aides said it’s a possibility they are exploring. In particular, they see potential to link CTC benefits to Supplemental Security Income benefits, whose recipients include low-income parents of children with disabilities. These benefits are sent out through the Social Security Administration but are only received by 1.7 percent of children. It’s not clear, however, that such a change would be able to pass into law and, even if it did, whether the IRS would be able to process all that new data.

“This is not a question of the IRS not having their heart or mind in the right place,” a Senate Democratic aide said. “It’s a question of capacity.”

The child tax credit expansion is new, so getting it to work perfectly will take time

Megan Curran, the director of policy at the Center on Poverty and Social Policy at Columbia University, said other countries have had child allowances on the books for decades, meaning they have had time to streamline the process: Sign-up comes at birth, with an annual renewal form in public schools. The US could do something similar, offering a sign-up form at the hospital at birth, same as Social Security.

Such a process might also pave the way for making the assistance an allowance rather than a tax credit, through the Social Security Administration — something many experts believe would make distributing funds easier.

“When you look at other countries, they have really easy-to-use websites,” Curran said. “They have different access points, they’re in the communities face to face. Obviously, through the tax system, it’s harder.”

In the absence of a complete restructuring, experts say that for any future benefits, the top factor in increasing participation is just time.

Elaine Maag, an income support program researcher at the Tax Policy Center, said research from the earned income tax credit shows that participation rates take off in a neighborhood when just one family familiar with the EITC moves into that neighborhood and begins talking about it.

“If I’m living in an apartment building with many families with children, and they start talking about this child tax credit and how they just received a payment, I would expect more families to wonder if they might be eligible for this payment as well,” Maag said.

Time may improve the child tax credit program if it is renewed, but in the meantime, non-filer families — and the IRS — will have to overcome challenges baked into the tax system, and the accessibility issues that come with them.