Around 4 million children in low-income families are at risk of not getting a monthly payment of the expanded child tax credit this year, according to a report published Thursday by the Center on Budget and Policy Priorities.
The IRS began issuing monthly payments of the tax credit on July 15, a policy prescription of the American Rescue Plan. Eligible families get up to $300 a month per child under age 6, and $250 for older kids under 18 years old.
Reaching the poorest households was a primary goal of the expanded and re-structured tax break. Previously, it had only been available to parents in a lump sum during tax season; those with low or no earnings may have qualified for a partial payment or didn’t receive any funds.
The changes will lead to a 40% reduction in the number of children living in households below the poverty line, according to the Center.
However, parents who haven’t filed a recent tax return or updated key information with the IRS may miss out on the benefit this year, according to the report. These Americans are often those with the lowest income — and have the most to gain from the funds, the report found.
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The report’s 4 million estimate is based on data from the Treasury Department and Medicaid, a public health program for low-income families and others.
But it’s difficult to determine how many children are truly falling through the cracks, according to experts.
“We don’t actually know how many children there are totally outside the tax system,” according to Elaine Maag, a principal research associate at the Urban-Brookings Tax Policy Center. “Nobody knows what the target number is.”
About 2.3 million kids don’t appear to have been claimed by a parent on an existing tax return. But other data suggest they exist — they have health insurance coverage through programs like Medicaid or the Children’s Health Insurance Program, according to the report.
Another 1.6 million are children expected to be born in 2021 with coverage through Medicaid, according to the analysis. There are also an unspecified number of uninsured kids who don’t show up on a 2019 or 2020 tax return, for whom data and estimates are limited, it said.
Statistics released by the Treasury Department so far indicate many poor families and kids did receive the first round of monthly payments.
The “vast majority” of American families, covering roughly 60 million kids, got a payment in July, according to a Treasury official. About 43% of them (26 million kids) live in families that would have gotten a lesser payment under old rules since their incomes were too low.
“We do know we’re moving in the right direction,” Maag said. “We’re adding more kids into the system.”
The stakes may be higher than just the child tax credit, though. Families may also be eligible for three rounds of pandemic-era stimulus checks, for which eligibility also hinges on a baseline level of information. They may also qualify for the expanded earned income tax credit.
The Biden administration has taken steps to reach such people, by launching an online tool for those who don’t typically file a tax return.
The IRS also took a similar measure for stimulus checks. More than 720,000 kids who otherwise wouldn’t have received a child tax credit got a payment in July because they signed up for a stimulus check last year, according to a Treasury official.
The administration has also launched awareness efforts such as events in cities where data show large numbers of kids live in households that don’t typically file a tax return.
State agencies that administer food stamps, Medicaid and other programs represent an untapped resource, according to Chuck Marr, the senior director of federal tax policy at the Center on Budget and Policy Priorities.
For example, the Supplemental Nutrition Assistance Program (i.e., food stamps) offers benefits to families with little or no earnings and who may not file tax return, Marr said. Such agencies can contact recipients to generate awareness about monthly child tax credit payments, he said.
The monthly payment is technically an advance on a portion of their annual tax credit, of either $3,000 or $3,600 per child, depending on their age. (That’s up from $2,000 per kid prior to the American Rescue Plan.) Those who don’t receive monthly payments this year will get the full value of their credit if and when they file a tax return in 2022.