With CTC Reform, Implementation is Half the Battle
In any near-term deal to expand the Child Tax Credit, Congress must remember that implementation is half the battle
Gabriel Zucker is the Associate Policy Director for Tax Benefits at Code for America. Rachel Snyderman is the Senior Associate Director of Economic Policy at the Bipartisan Policy Center.
The American Rescue Plan’s (ARP) temporary expansion of the Child Tax Credit (CTC) in 2021 shined a spotlight on the program’s ability to reduce child poverty. While lawmakers deliberate the credit’s future, momentum is building to make near-term modifications in a coming year-end budget deal or early in the new Congress—well before pre-ARP modifications to the CTC, passed in the Tax Cuts and Jobs Act of 2017, expire at the end of 2025. Such conversations raise the possibility that both parties can prioritize permanent fixes to ensure the program maintains its place as a critical part of the American social safety net.
This investment in American families, however, will only achieve its full potential when it reaches every eligible household. Fortunately, we have learned a tremendous amount in the last year and a half about how to increase take-up of the CTC. But while the IRS has made great strides to advance this work, they have largely done so without explicit congressional authorization, making it hard to prioritize and institutionalize. The Inflation Reduction Act’s $80 billion investment in the agency to improve taxpayer services is a laudable start. If Congress strikes a deal to expand the CTC during the lame duck session, the IRS should direct these new resources towards pursuing key access and administrative measures to ensure the policy reaches its intended beneficiaries. Among these include:
Simplifying the filing process for low-income households
Congress should direct the IRS to authorize a simplified filing process for many low-income families to claim the CTC—and its companion, the Earned Income Tax Credit (EITC)—without providing tax documents like W-2s or reporting their own earnings, which the agency already has on file. In each of the last three filing seasons, the IRS authorized simplified filing to claim Economic Impact Payments and the 2021 CTC, and the results showed it was transformational. Hundreds of thousands of families—many of whom had never interacted with the tax system at all before—were able to file simplified returns and claim their credits, often in less than 15 minutes, providing only their basic household and payment information.
With congressional support, the IRS could expand simplified filing permanently for the CTC and EITC, allowing households with only W-2 income to elect to have their credits calculated for them based on IRS’s own copies of W-2 data. In the short term, such refunds may be delayed while IRS cleans and processes W-2 data, but pending improvements in IRS business systems would eventually allow the process to happen in real time. It is important to note, however, that absent this expansion of the simplified filing process, the current-law version of the CTC could not be covered by it.
Conducting direct and actionable outreach to eligible households, especially non-filers
The IRS produces myriad informational resources explaining tax credits and filing options, but these resources can be overwhelming, and many would-be tax filers may not even know they exist. To supplement existing educational efforts, Congress should ask the IRS to undertake direct, targeted outreach to households likely eligible for the CTC or EITC who have not filed taxes in the current tax year. This, too, is something the IRS has done in each of the last three years—to great success—with letters estimated to have prompted hundreds of thousands of households to file tax returns.
With congressional backing, the IRS could institutionalize this practice, taking it out of the realm of emergency pandemic relief and making it part of the agency’s annual operations. Outreach can be sent each year in the latter half of the filing season—containing a single, actionable URL, where recipients can find the aforementioned simplified filing tool, as well as other filing options. The IRS should also ensure that all informational resources—including direct outreach—are clear, succinct, actionable, and not overwhelming to recipients.
Directing the IRS to compile an annual report on refundable credits’ coverage gaps
Clear and actionable data on refundable credits’ coverage gaps (those eligible but who do not claim them) is critical to better focus outreach efforts, troubleshoot access issues, and build momentum toward full take-up. The IRS collects and issues reams of data each year—in real-time Filing Season Statistics, retrospective Statistics of Income reports, and more—but this data describes tax filers. These products do not undertake the more complex task of exploring those who do not file returns. The IRS has shown through its ongoing EITC participation rate estimates (based on Census-IRS data matches) and through detailed data releases in 2020 and 2021 (based on information returns like W-2s and 1095s), however, that it is possible to learn more about the non-filer population. Through careful analysis of the available data, we can learn about their tax filing histories; whether they attempted to file returns; demographic information; geographic information; sources of income and industries of employment; and more. As Congress takes an increasing interest in expanding the federal tax system to cover low- and no-income households, it should ask the IRS to institutionalize and expand the practice of delving deeper into this data, so that future outreach can be as efficient and strategic as possible.
While technical fixes to improve take-up and administration often play second fiddle to big-picture debates about the design, scale, and timeline of refundable tax credits, they are nonetheless just as important.
A firm signal of congressional commitment to implementation considerations—and especially a bipartisan commitment, in light of these credits’ long bipartisan support—will make an enormous difference for families across the country.
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