Are the People Your Nonprofit Serves and Your Nonprofit Employees Receiving the New Child Tax Credit Yet?

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Starting this month and continuing through the end of this year, the IRS will send payments of up to $250 or $300 each month, per child, to the parents or guardians of 65 million eligible children under 18 years of age in the United States. Those parents and guardians include both people nonprofits serve and nonprofit employees. A major strength of the new advance Child Tax Credit program is that payments will happen automatically without people having to fill out any paperwork. But what happens in situations when it doesn’t happen “automatically” as intended? 

This article describes new substantial improvements to the law, highlights some of the design features receiving applause, and identifies barriers that put an estimated “4 million to 8 million eligible children … at risk of missing out” on six months of immediate payments. And because it takes a village to raise a child, the article concludes with action steps all nonprofits need to take to make sure those families get the payments they are entitled to. If not us, who?

Substantial Improvements 

In 1997, Congress – “to help ease the financial burden that families incur when they have children” – started providing tax relief to middle- and upper-middle-income families in the form of a child tax credit of $500 per child. Over the next two decades, Congress expanded eligibility to include some lower-income families, increased the amount of the credit (up to $2,000 per child), and allowed it to be partially refundable (up to a maximum of $1,400) as part of the annual tax return.  

Earlier this year, in response to the pandemic and resulting economic hardships facing American families, Congress significantly modified the child tax credit for this year only. These changes represent the groundwork for the most significant federal anti-poverty program enacted in decades. Here are major highlights of the new advance Child Tax Credit (ACTC) enacted in March 2021 as part of the American Rescue Plan Act (ARPA):

  • Increases the amount per child for a fully-refundable tax credit: Congress increased the maximum credit from $2,000 annually per qualifying child to $3,600 ($300 monthly) for children ages 5 and under and $3,000 ($250 monthly) for children ages 6 through 17. (Those maximum amounts are reduced through phase-outs for higher-income families.)
  • Expands eligibility: It also increased the maximum age of eligibility from 16 to 17 (based on the age of the child on December 31, 2021).
  • Creates a near-universal benefit: The credit is generally available to all but the highest-income families with children – approximately 96% of families with children will receive the credit. 
  • Pays monthly: Instead of receiving the entire Child Tax Credit on 2021 tax returns filed in 2022, the “advance Child Tax Credit payments are early payments from the IRS of 50 percent of the estimated amount” of the credit, IRS CTC FAQ A.1, divided into six monthly payments (via direct deposit or checks), scheduled for July 15, August 13 (early because the 15th falls on a Sunday), September 15, October 15, November 15, and December 15. The remaining 50 percent will be paid in lump sum as part of any refunds due during the 2022 tax filing season. 
  • Automatic: Most people won’t have to do anything to receive the monthly payments. The IRS will calculate the ACTC payment based on a family's 2020 tax return. If that return is not available because it has not yet been filed or is still being processed, the IRS will instead determine the initial payment amounts using the 2019 return. To make sure families have quick access to these funds, the IRS will send payments by direct deposit using banking information from a 2020 tax return or any updated information from the taxpayer. 
  • Labels the deposits as being for children: Historically, payments for child tax credits were rolled into one overall tax refund, making it too “easy for taxpayers to lose track of a credit meant for children,” but now the direct deposits are labeled “CHILD CTC.”

Note that these changes are temporary, for 2021 only. The monthly payments and increased amounts will end on December 31 unless Congress extends the ACTC program.

Elements of the new program are winning accolades:

  • “Advocates expect it to have sweeping and immediate effects on school outcomes, childhood nutrition, and rates of homelessness.” – Annie Lowrey (see “Additional Resources” below for full citations)
  • “It pays the benefits out on a regular monthly basis beginning now, rather than annually. This is a game changer in terms of how we support families; not only through the tax and benefits system in the U.S., but also in terms of what families can do with this money. They can start to count on it as a more regular part of their household budget because as you know, the rent comes every month, not once a year.” – Megan Curren
  • “The simplicity of direct deposit … is a major reversal from most safety net programs, which have work requirements and other hurdles and oblige recipients to navigate a complicated bureaucracy.” – Claire Cain Miller 
  • “The policy’s design is unique, and uniquely powerful too. Families will not need to fill out reams of paperwork or jump through many hoops to get the cash. … That will make the benefit easier to get and maintain than others, like welfare and food stamps, advocates say, particularly for stressed, time-poor single parents.” – Annie Lowrey 
  • “This policy is a revolutionary shift in how government aid is disbursed: It’s all cash, in most cases goes directly into people’s bank accounts and comes with no strings attached.” – Christine Emba 
  • “[M]oney labeled for children — the deposit…in parents’ bank accounts ...[is marked] CHILD CTC — is more likely to be spent on children, research shows.... [L]abeling the purpose of the money guides people on how to spend it.” – Claire Cain Miller
  • “[R]ecipients will receive unrestricted cash. You can’t use food stamps to pay for diapers. You can’t use a housing voucher to gas up your car or pay a babysitter. But parents will be able to use this money on whatever they need to, stabilizing family finances in a way no other program does.” – Annie Lowrey

Compared to other government programs, the ACTC is beautifully simple for a huge percentage of people. But for others, it presents frustratingly basic challenges:

  • No awareness: “An estimated 88 percent of recipients will not need to do anything to get the cash—the IRS will send the money automatically. But an estimated 4 million to 8 million eligible children are at risk of missing out, because their parents or guardians do not need to file taxes or are not filing taxes—and because they might not even know the complicated, obscure-sounding, and scarcely advertised policy exists.” – Annie Lowrey (emphasis added)
  • Technical challenges: “If families [didn’t file] their taxes in 2020 … (as is the case for many of the poorest families, who had minimal taxable income), they must apply through the Internal Revenue Service’s creaky ‘non-filer portal.’ And that website is available only in English, does not work on cellphones and is the opposite of intuitive – [“requiring them to have an email account, good command of English, and access to a computer”] – all significant obstacles, especially for those who could use the benefit most.” – Id. (emphasis added)

It Takes a Village – How All Nonprofits Can Help

The new ACTC program could be a game-changer, reducing child poverty by half, according to researchers at Columbia University Center on Poverty and Social Poverty. But not if payments – or even knowledge about the payments program – never reach the families with children the program was created to help. Here are some of ways nonprofits can make sure those game-changing payments reach their intended recipients:

1. Inform your employees, board members, volunteers, and those you serve so they know about the program. The good news is that you don’t have to become an expert in the law to tell people that there is a cash program for families with children. The main challenge right now is that so few people know about this program. Consider:

  • “The expanded child tax credit is … underpublicized, and it’s likely that a good number of beneficiaries aren’t aware of its availability.” – Christine Emba
  • “With the federal government doing little to reach families…, nonprofits and community groups—legal-aid societies, volunteer tax preparers, places of worship, child-care centers, food banks, homeless shelters, and community-organizing groups such as the Maine People’s Alliance—have stepped in.” – Annie Lowrey

2. Focus first on the people and communities you serve, then broaden your view about how you can help. At first blush, it might appear that only nonprofits serving children or certain populations need to spread the word to make sure that the program does not “leave millions of families—disproportionately the poorest and most fragile ones—behind. Advocates are particularly worried about families experiencing homelessness or housing instability, and those without internet access or a bank account. They also worry about families in which a parent is incarcerated, has a language or literacy challenge, is sick or disabled, or has a different immigration status than their kid.” Yes, let’s give those and other vulnerable families extra attention. But that’s not enough. The multiple crises of the past year revealed that anyone can be left behind. Think about other groups to partner with – places of worship, schools, sports leagues, and more – to extend our outreach and make sure that all families in America get their due and are given a chance. 

3. Use free resources to help spread the word. The IRS prepared several sets of materials you can use, including multiple flyers (e-Posters) laying out basic information and available in several different languages, and ready-to-use articles.

4. Know about the resources available. See these additional materials from the IRS:

5. Urge People to Avoid Scams: The IRS has issued multiple warnings about fraudsters. See, for example, this IRS Press Release, IRS Criminal Investigation warns taxpayers about Child Tax Credit scams, July 20, 2021. “The IRS urges everyone to be on the lookout for scam artists trying to use advance Child Tax Credit payments as a cover for schemes to steal personal information and money. The IRS doesn't initiate contact by email, text messages, or social media channels to request personal or financial information – even information related to advance Child Tax Credit payments. Also, watch out for emails with attachments or links claiming to have special information about advance Child Tax Credit payments or refunds of the Child Tax Credit.” IRS CTC FAQ A.14.

Additional Information about the Advance Child Tax Credit

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