AMERICAN RESCUE PLAN

How will the 2021 Child Tax Credit be distributed?

The American Rescue Plan provides a complete revamp for the childcare support, but there are fears that the IRS' busy schedule could affect the rollout.

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How will the 2021 Child Tax Credit be distributed?

The American Rescue Plan was President Biden’s first major legislative priority since taking office and provided $1.9 trillion of federal funding, much of which is aimed at helping those who have suffered the most during the pandemic.

Included in that was a complete overhaul of the Child Tax Credit programme that was first introduced in 1976. The new system is a radical departure from the childcare support that went before and the White House believe it will help to cut childhood poverty in the United States in half once up and running.

New Child Tax Credit programme will provide monthly payments

The new-look Child Tax Credit system is designed to better support low-income families and so a number of crucial changes have been introduced. The biggest change comes in the distribution method, which will no longer be as a simple tax refund or rebate at the end of the tax year.

The new programme will see monthly payments sent as a direct debit, meaning no more 12-month wait to get the full entitlement. The system will be more like the stimulus check distribution which has proved so popular throughout the pandemic.

Alongside this alteration the actual amount on offer will be increased, with low-income families potentially enjoying the biggest improvement. The new Child Tax Credit will be worth up to $300 per month for each child under the age of six, and up to $250 for those aged between six and 17.

The American Rescue Pan also removes the tax threshold for eligibility, which had previously prevented those who pay little or no tax from receiving the full entitlement.

Issues expected with the new Child Tax Credit distribution

There is clearly much optimism from the Biden administration about the potential of the new programme, but earlier this week IRS Commissioner Charles Rettig warned the House Ways and Means Committee that he foresees issues with the distribution.

The IRS are currently overseeing both the distribution of the $1,400 third stimulus checks and a busy tax season. They have been given a one-month extension on the deadline for the latter, but this could have intended consequences for the Child Tax Credit.

In his meeting with the House committee, Rettig admitted that it will take some time for the IRS to set up the infrastructure required to send the monthly payments out to the tens of millions of recipients.

He said: “The same people who do our income tax [and stimulus check] processing are the people who need to develop that portal, so I don’t have the resources to devote to that portal until filing season ends,” he said. “We now have one month less to do the development.”

Despite the aiming for monthly payments the American Rescue Plan only stipulates that the payments must be “periodic”, which gives Rettig some room to manoeuvre on the initial provision.

Speaking to the House committee, he said: "I think it might be a challenge to get into the monthly right out of the box."