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1 1 (April 21, 2021)

handle is hein.crs/govedbb0001 and id is 1 raw text is: April 21, 2021 Advancing Refundable Tax Credits: Policy Considerations Many policymakers have expressed interest in having the Treasury advance refundable taxcredits in installments (potentially monthly or quarterly). This approach is an alternative to providing the credits as an annuallump sum (i.e., as a taxrefund), which may help households better meet their ongoing needs. In the American Rescue Plan Act of 2021 (ARPA; P.L. 117-2), Treasury is directed to advance half of the temporarily expanded child credit during the last sixmonths of2021. There are four general considerations that policymakers may face when designing advance payments ofrefundable tax credits for families: * the lackof data on alleligible households; * the lagged nature of available annual data; * changes in households' circumstances; and * whether and how households would be required to reconcile (and perhaps repay any excess) advance payments when taxes are filed. The term household as used in this In Focus refers to the individuals who are or would be listed on a federal income tax return (if it were filed); it is used interchangeably with taxpayer and tax filer. Other analyser m t22 huo l tax uniL This In Focus discusses these considerations in the context of the advance child credit (ARPA child credit'). Policymakers may choose different approaches when considering advancing taxcredits for families in the future. Lack of Data on Eligible Households The federaltax systemdoes not include data on all households potentially eligible for an adv ance credit. Hence, unless eligible non-filer families manually provide that information to the IRS, they will generally not receive a payment. A 2017 CBO analysis estimated that of 292.6 million individuals who could be included on a federal income tax return (as the taxpayer, spouse, or dependent), 251.9 million were actually included- representing about 86% of all individuals. The study es timated that the greatest share of non-filers were lower- income households who are generally not required to file a federal income tax return. The IRS could provide a means for families to pro vide this information (like the non-filer portalused for the stimulus checks). Ifa tool were made available, some eligible households might not use it. For example, this was the case in October 2020, when five months after the stimulus check non-filer portal was created, an estimated 9 million to 12 million eligible non-filing households had not received a check. https://crs repo In SeptemberandOctober2020, the IRS, onbehalfof Treasury, sent notices to approximately 9 million taxpayers that were potentially eligible for the firs t round of s timulus checks. According to data provided to CRS by the IRS, between September 19, 2020 (the date notices were first released) and November 21, 2020 (the date the non-filer portal closed), approximately 1.2 million returns were accepted. It is unclear exactly how many of the 9 million notice recipients were ultimately eligible, nor is it clear the extent to which the notices increased use of the non-filer portal. Nonetheless, this may be indicative of the number of households who were eligible for the first payment, but did not receive it in 2020. ARPA Child Credit: ARPA directs the Treasury to create a portal to allowhouseholds to modify information related to potential advance payments of the child taxcredit. It is unclear if otherwise eligible non-filers willbe able to use this portalto provide new information, or whether the portal will only allow taxfilers to updateexisting taxreturn information. If new information cannotbe provided onthe portal, the application for the advanced credit will be a 2020 income taxreturn. Lagged Nature of Available Annual Data Federal tax law as sesses taxes on annual taxable income. Thus, the federalincome taxsystemcollects data via tax returns on annual income and annual family structure (i.e., marital s tatus and number of children). For example, a 2020 income taxreturn will include a household's total incone in 2020, as well as their marital status (e.g., filing a joint tax return indicates two adults are married) and the number of children they claimfor various child-related taxbenefits in 2020. Tax filing status for a given year depends on whether a taxpayer is married or unmarried and whether or not the taxpayer has dependents. Marital status is determined as of the last day of the calendar year. For example, if a couple is married on December31, 2020, they are considered married for all of 2020 for taxpurposes. (There are exceptions to this generalrule.) Most married taxpayers file their returns jointly. Taxpayers with dependents may file using the head of household filing status. Formost taxbenefits, children must live with the taxpayer for more than sixmonths outof the year to be considered a qualifying child (something that may only be clear at the end ofthe year for some households.) In addition to annualincome and family structure data, households often provide a street address and bank account information on their tax return. Tax data generally do not include information about within- year fluctuations in income and family structure. This may limit the ability to structure a taxbenefit to respond to

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