Using the Federal Income Tax System to
December 5, 2022
Deliver Cash Assistance to Families: Policy
Margot L. Crandall-Hollick
Considerations
Specialist in Public Finance

The central purpose of the federal income tax system is to collect revenue to fund the
Cheryl R. Cooper
federal government’s activities. Nonetheless, the income tax system is also one of the
Analyst in Financial
largest sources of federal cash benefits to U.S. households (after Social Security) and
Economics
remains the largest source of need-tested cash assistance for low- and moderate-income

families with children. Policymakers often look to the federal income tax system to
deliver cash benefits—especial y to low- and moderate-income individuals and families.

Cash benefits in the tax code for low- and moderate-income families are general y structured as refundable tax
credits. Refundable credits, unlike other tax benefits, are not limited by how much a family owes in income taxes.
Hence, low- and moderate-income families—who tend to owe little or nothing in income taxes—can stil receive
these benefits as part of their annual tax refunds.
There are a variety of benefits and limitations of using the federal income tax system as the mechanism to provide
cash assistance to families. Insofar as policymakers are interested in using the income tax system for this purpose,
either on a temporary or permanent basis, they may wish to consider some of these issues as they develop their
policies. This report examines seven issues that might inform the design of tax-based social benefit policies.
Those issues are summarized in the table below.
Selected Policy Considerations
Issue
Policy Considerations
The Application for Tax Benefits Is the
Some information on the 1040 (i.e., various forms of income) can be accurately and
Federal Income Tax Return
efficiently verified, but other information (like some aspects of a child’s eligibility
The federal income tax return (i.e., “the 1040”)—
for child benefits) are difficult or impossible for the Internal Revenue Service (IRS)
while designed primarily to determine if
to verify, absent an audit. In addition, the 1040 does not col ect some parameters
households have paid al the income tax they owe
that policymakers may wish to use to administer tax benefits.
for the year—also functions as an application for
tax benefits.
Not All Households File a Federal Income
Lack of information on low-income households may limit tax benefit programs’
Tax Return
reach. Policymakers seeking to reach low-income households may consider
The lowest-income households are general y not
requesting this information directly (e.g., via a “nonfiler” portal) or using other
required to file federal income tax returns
administrative data for outreach or administrative purposes. They may also
(although they can if they choose to). The IRS thus
consider whether a comparable nontax benefit administered by a different agency
may lack information on nonfiling households who
could better reach these populations in the short, medium, and/or long term.
are eligible for a tax benefit.

Many Households Use Paid Preparers and
Private third-party intermediaries may make applying for and receiving tax benefits
Commercial Software
with complex rules easier for many households. But the associated fees reduce the
Most families that receive cash assistance through
amount of assistance families receive. And the high error rates of tax benefit claims
the tax code pay for assistance in preparing and
on returns prepared by paid preparers—due in part to the complexity of tax
filing their returns—either using paid tax preparers
benefit eligibility rules—may leave taxpayers and tax benefits more open to
or commercial software.
scrutiny.

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Using the Federal Income Tax System to Deliver Cash Assistance to Families

Issue
Policy Considerations
Data Used to Administer Tax Benefits Are
While the IRS has data on family structure, number of children, and various
Generally Annual Data from a Prior Year
sources of income for the majority of U.S. households, these data are both
Eligibility for and the amount of tax benefits a
retrospective and annual. Prior-year tax data may not reflect a household’s current
family receives in a given year are based on prior-
circumstances, especial y if families experience income volatility or changes in
year annual tax data. In other words, the IRS has
family structure within the year and/or from year to year, so tax benefits may be
information on a household’s situation in the
less responsive to families’ needs than other types of benefits.
previous year, but not on its present situation. In
addition, tax data general y do not include
information about within-year fluctuations in
income and family structure.

Tax Benefits Are Usually Delivered Once a
Insofar as tax benefits are “advanced,” policymakers may consider if and to what
Year
extent those advanced amounts should be reconciled with the amounts al owed on
General y, tax benefits are paid out once a year as
applicable tax returns and the extent to which taxpayers would need to pay back
a lump sum as part of a federal income tax refund.
overpayments of advanced tax benefits.
The IRS has demonstrated an ability to issue
monthly payments by “advancing” credits before
the applicable tax return is filed.
Some Households Do Not Have or Use
Direct deposit into a traditional bank account may provide the most secure and
Bank Accounts to Receive Tax Benefits
fastest receipt of tax benefits, but households that lack such accounts may struggle
Some Americans, especial y lower-income
to receive their benefits. Moreover, some taxpayers use refund advanced products
Americans, may face difficulties receiving payments
that direct tax refunds to temporary bank accounts, to which the IRS cannot
quickly and securely from the IRS if they do not
deliver later payments. Policymakers may consider other options for benefit
have or do not use bank accounts to receive their
receipt, such as issuing prepaid cards.
tax refunds.

Tax Benefits Can Be Reduced via Offset or
Col ecting delinquent debts may benefit populations to whom the debts are owed.
Garnishment Actions
But col ection activities can also impose significant financial hardship on those
A household’s tax benefits (i.e., its tax refund) can
whose benefits are offset or garnished, especial y if they are low income.
be reduced by the federal government to col ect
Policymakers may consider the trade-offs between col ecting certain past-due debts
certain debts or garnished by private creditors.
and the impact those offsets or garnishments wil have on policy objectives for a
particular tax benefit or population.

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Using the Federal Income Tax System to Deliver Cash Assistance to Families

Introduction
The central purpose of the federal income tax is to collect revenue to fund the federal
government’s activities. Nonetheless, the income tax system is also one of the largest federal
sources of cash benefits to households in the United States. In particular, the federal income tax
system is the largest source of need-tested cash assistance for low- and moderate-income families
with children.1 Policymakers often look to the federal income tax system to deliver cash benefits,
especial y to low- and moderate-income individuals and families.2 As one scholar commented,
“the IRS is now one of the government’s principal welfare agencies, on par with the Department
of Health and Human Services (HHS) and the Social Security Administration.”3
Cash assistance for low- and moderate-income families is general y structured in the tax code as
refundable tax credits. Refundable credits, unlike other tax benefits, are not limited by how much
a family owes in income taxes. Hence, low- and some moderate-income families—who tend to
owe little or nothing in income taxes—can stil receive these benefits as part of their annual tax
refunds. This report wil tend to focus on refundable credits as the primary mechanism for
delivering assistance to families, although some of the issues discussed may apply to other types
of tax benefits for families.
This report provides policymakers with a broad understanding of some of the benefits and
limitations of using the tax code to provide cash assistance to families by examining seven issues
common to most tax benefits. Selected examples (“case studies”) are provided throughout to
il ustrate some of these issues or examine certain topics more closely.4
Issue 1: The Application for Tax Benefits Is the
Federal Income Tax Return
The federal income tax return functions as the application for tax benefits, although that is not its
primary purpose. The federal individual income tax return’s primary function is to reconcile how
much households owe in income taxes annual y and how much they have already paid during the
year. A household that has overpaid its taxes—often when individuals have had too much
withheld from their paychecks during the year—receives a refund after filing its Internal Revenue

1 See CRS Report R46823, Need-Tested Benefits: Who Receives Assistance?, by Gene Falk, Karen E. Lynch, and Paul
D. Romero; and Hilary Hoynes and Diane Schanzenbach, “ Safety Net Investments in Children,” NBER Working Paper
24594, May 2018, https://www.nber.org/papers/w24594.
2 Congress provided three rounds of stimulus checks to low- and moderate-income individuals and families during the
COVID-19 pandemic; see CRS Report R46415, COVID-19 and Direct Paym ents: Overview and Resources,
coordinated by Margot L. Crandall-Hollick. It also expanded the child tax credit in 2021; see CRS Report R46900, The
Expanded Child Tax Credit for 2021: Frequently Asked Questions (FAQs) , by Margot L. Crandall-Hollick. In addition,
Congress has proposed redistributing the receipts from a proposed cap-and-trade program to households via the tax
system; see CRS Report R40841, Assisting Households with the Costs of a Cap -and-Trade Program : Options and
Considerations for Congress, by Jonathan L. Ramseur and Libby Perl.
3 Kristin Hickman, “Pursuing a Single Mission (or Something Closer to It) for the IRS,” Columbia Journal of Tax Law,
vol. 169 (2016), p. 175.
4 Note that for ease of reading, the terms family and household are generally used interchangeably in this report and,
unless otherwise specified, refer to all the individuals listed on a federal income tax return.
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Service (IRS) Form 1040 (often simply cal ed “the 1040”). In contrast, a household that has
underpaid its taxes throughout the year owes a balance to the IRS.5
When a household prepares its federal income tax return, it provides various pieces of
information so that the IRS can administer the tax code, including tax benefits. This includes
information on numerous types of income, some family relationships (spouse, children, other
dependents), some expenses, and government issued identification numbers (IDs). A household
general y also provides its mailing address for the previous year and, if it is owed a refund and
has a bank account, may provide its bank information (e.g., the routing and account number
associated with its bank account) to receive its refund via direct deposit. Tax data provided on
other IRS forms—like information provided on W-2 wage statements for employees—are often
insufficient to administer tax benefits that are designed for households, which are the focus of this
report.
Verification of Data Provided on the 1040
When taxpayers provide information on their signed and filed tax returns, they acknowledge,
under penalties of perjury, that the information provided is accurate and complete. Nonetheless,
the IRS can independently verify the accuracy of some taxpayer-provided information, especial y
various sources of income. Broadly, the IRS verifies the accuracy of some tax data by comparing
the information provided on the 1040 to information provided to the IRS by third parties, like
employers, banks, financial institutions, universities, health insurers, and non-IRS government
databases. As the Government Accountability Office (GAO) notes6
misreporting [tax information] is much higher when little or no third -party information
reporting exists than when substantial reporting exists . For items subject to substantial
third-party information reporting, such as employers reporting wages on Form W -2, the
IRS is able to use automated processes to identify and address noncompliance. Information
reporting also produces indirect benefits by increasing taxpayers’ incentive to comply,
knowing that IRS collects the information, according to IRS officials .
However, the IRS cannot verify al information provided on the 1040 efficiently or accurately
because it may not have relevant high-quality and timely third-party information. Lack of third-
party information may be of particular concern to policymakers who are interested in tax benefits
for families with children since many aspects of eligibility cannot be accurately or efficiently
verified (see “Case Study 1A | EITC Improper Payments and Verifying Where a Child Lives”).
Data Not Provided on the 1040
Information that could be necessary to administer a new tax benefit may not currently be
collected on the 1040. For example, families do not currently report information regarding more
nuanced relationships or activities that policymakers may wish to encourage or support—such as
kinship care or unpaid caregiving. Other aspects of family life that are not necessary to administer
federal tax law but may be of interest to policymakers when designing tax policies—such as a
household’s debt or wealth or demographic characteristics like race, gender, education level, or
immigration status—are also not provided on the 1040.

5 Households who pay exactly what they owe are sometimes said to have “perfect withholding” and neither re ceive a
refund nor have a balance due.
6 U.S. Government Accountability Office (GAO), Tax Administration: Better Coordination Could Improve IRS’s Use
of Third-Party Inform ation Reporting to Help Reduce the Tax Gaps, GAO-21-102, December 15, 2020, p. 7,
https://www.gao.gov/products/gao-21-102.
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Even if the IRS updated the form to request certain information from taxpayers, accurate third-
party data that could be used to verify this information may not be available. There is not, for
example, an existing database that provides accurate and timely information on individuals who
provide unpaid caregiving or kinship care. Some taxpayers could see requests for information that
is not necessary to administer tax law as overly intrusive. This could have unintended
consequences, like discouraging participation in the tax system (see “Case Study 1B | Race,
Ethnicity, and the Tax Code”).
Policy Considerations
If families are preparing their returns and already providing information about their income and
family composition for tax purposes, using the federal income tax return may be an efficient way
for families to receive cash assistance. In the words of economist Bil Gale, the income tax (and
the 1040) can provide “‘one stop’ shopping that enables people to receive, in one fel swoop, the
benefits of numerous social policies and economic incentives.”7
Refundable Tax Credits Are Not Taxable and Do Not Reduce the Amount of
Other Need-Tested Federal Benefits
At the federal level, refundable tax credits for individuals are not considered taxable income. This is the case
regardless of whether the credit is claimed on a tax return or issued as advance payments. In addition, refundable
tax credits do not count as income, or as resources for a 12-month period, in determining eligibility for or the
amount of assistance provided by any federal or federal y funded need-tested public benefit program.8
The treatment of assistance provided under other benefit programs varies, depending on the particulars of each
program and whether Congress has specifical y addressed the treatment in law.
In contrast, to receive other forms of assistance, a household may need to fil out a separate
application and have its eligibility information (including income) verified before a benefit is
issued, sometimes with a face-to-face interview. This may improve compliance with a particular
program’s eligibility requirements, for example by helping administrators more accurately
determine need. But it also may place more administrative burdens on applicants than fil ing a tax
return and may also increase overal program administration costs. Conversely, while using tax
returns as the application for tax benefits may be less burdensome to households and less costly
for the government in terms of upfront administration costs, it may be an imperfect instrument for
determining eligibility, which could contribute to households erroneously receiving these
benefits.9
And some dispute how simple the process of using a tax return to apply for benefits actual y is.
For some families, preparing and filing a return may be complicated, especial y in terms of
understanding tax terminology and eligibility rules for tax benefits (e.g., what is a dependent for

7 William G. Gale, Are Taxes Complicated? Compared to What?, T ax Policy Center, T axVox Blog, April 15, 2022,
https://www.taxpolicycenter.org/taxvox/are-taxes-complicated-compared-what .
8 See Internal Revenue Code (IRC) §6409.
9 T he IRS T axpayer Advocate has argued that using tax returns as the “application” for the earned income tax credit
(EIT C) rather than a traditional screening process results in low cost with high participation as well as a higher risk of
improper payments. “Current administration costs are less than 1% of benefits delivered. T his is quite different from
other non-tax benefits programs in which administrative costs related to determining eligibility can range as high as
20% of program expenditures.” Written Statement of Nina E. Olson, National T axpayer Advocate, in U.S. Congress,
House Committee on Ways and Means, Subcommittee on Oversight, Improper Payments in the Administration of
Refundable Credits, hearings, 112th Cong., 1st sess., May 25, 2011, p. 9, https://www.irs.gov/pub/tas/testimony-written-
wm_oversight -improper_payments-5-25-2011.pdf.
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tax purposes, what is adjusted gross income).10 This can be especial y true of child tax benefits
claimed by more complex or dynamic families (e.g., multigenerational families or families where
members move in and out of a household during the year). In these families, more than one adult
may be able to claim a child for a given tax credit and family members may struggle with
understanding who can claim the child for a particular benefit.11 This may lead families to make
mistakes when preparing their returns or turn to paid preparers for help, which could create new
policy concerns including increased scrutiny of benefit recipients and reduced benefit amounts. It
may also increase the opportunities for individuals to fraudulently claim tax benefits for which
they are not eligible.
Case Study 1A | EITC Improper Payments and Verifying Where a Child Lives
The lack of accurate third-party data, especial y those tied to children, makes certain tax benefits difficult for the
IRS to administer. A prime example of this issue is the lack of accurate third-party data to verify that a child
claimed by a taxpayer for the earned income tax credit (EITC) meets the residency test. Taxpayers state on their
returns that the children they are claiming for the credit have lived with them for at least half of the calendar year.
But as the National Taxpayer Advocate noted in a 2019 report:12
the IRS cannot independently verify that a child meets al the current EITC qualifying child rules,
especial y the residency requirement, during filing season. There is no national, authoritative,
and timely database that indicates where and with whom a child lives during a calendar year for
the purposes of administering this tax benefit, making accurate verification of this requirement
difficult. Nor do we believe U.S. taxpayers would tolerate the government creating such a
database.
Notably, IRS research also indicates that taxpayers who claim children who do not meet the EITC’s eligibility
requirements are the largest source of improper payments of the credit in dol ar terms, and the most common
eligibility requirement that they fail to meet is the residency requirement.13 (Improper claims may be intentional
fraud or honest mistakes.) This suggests that tax benefits that rely on information that is difficult to verify
independently could be more prone to erroneous claims, which could make the benefits (and their recipients)
more prone to scrutiny. For example, returns with EITC claims tend to be audited more frequently than non-EITC
returns.14
Case Study 1B | Race, Ethnicity, and the Tax Code
Some policymakers are interested in understanding the impact of tax provisions on families and individuals of
different races and ethnicities.15 While tax provisions are not explicitly designed to benefit individuals of certain

10 Gabriel Zucker, Cassandra Robertson, and Nina Olson, “Introduction: Problems with IRS Benefit Delivery and Goals
of Reform,” in The IRS as a Benefits Administrator: An Agenda to Transform the Delivery of EIP, EITC, and CTC,
New America, New Practice Lab, March 24, 2021, https://www.newamerica.org/new-practice-lab/reports/the-irs-as-a-
benefits-administrator/.
11 For more information, see CRS Insight IN11634, Child Tax Benefits and Children with Complex or Dynamic Living
Arrangem ents, by Patrick A. Landers and Margot L. Crandall-Hollick; and Elaine Maag, H. Elizabeth Peters, and Sara
Edelstein, Increasing Family Complexity and Volatility: T he Difficulty in Determining Child T ax Benefits, T ax Policy
Center, March 3, 2016, https://www.taxpolicycenter.org/publications/increasing-family-complexity-and-volatility-
difficulty-determining-child-tax-benefits/full.
12 T axpayer Advocate Service, Earned Income Tax Credit: Making the EITC Work for Taxpayers and the Government,
Objectives Report to Congress FY2020, Volume 3, July 2019, p. 12.
13 Internal Revenue Service (IRS), Compliance Estimates for the Earned Income Tax Credit Claimed on 2006 -2008
Returns, Publication 5162, August 2014, http://www.irs.gov/pub/irs-soi/EIT CComplianceStudyT Y2006-2008.pdf.
14 See CRS Insight IN11952, Audits of EITC Returns: By the Numbers, by Margot L. Crandall-Hollick.
15 For example, see Letter from Richard E. Neal, Chairman of the Committee on Ways and Means, and Ayanna
Pressley, Member of Congress, to T he Honorable Steven T . Mnuchin, Secretary of the U.S. Department of the
T reasury, July 31, 2020, https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/
2020.07.31%20Letter%20to%20Treasury%20CARES-IRC%20FINAL.pdf. Also see Executive Order 13985,
“Advancing Racial Equity and Support for Underserved Communities T hrough the Federal Government.”
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races or ethnicities, some researchers have found that “wealthy, more likely White and male, households may
disproportionately benefit from certain tax provisions.”16
Taxpayers do not directly report race and ethnicity data and some other demographic data on their federal
income tax returns, making it difficult to accurately assess these policies’ impacts by race and ethnicity. In a 2022
report, the Government Accountability Office (GAO) noted:
According to the Department of the Treasury, IRS cannot col ect demographic data under
current law unless such data are necessary for administering the tax code. As a result, analysts
have limited ability to assess the effects of tax laws, including COVID-19-related tax relief
provisions, by demographics such as households’ race, ethnicity, and sex.
Many argue that asking for this information directly on tax forms could have drawbacks, including increasing the
chances of confidential tax data being leaked and reducing voluntary taxpayer compliance.17
Due to the legal, administrative, and policy issues around directly asking taxpayers to provide their race/ethnicity
data, researchers, including those at the Urban Institute,18 Congressional Budget Office (CBO),19 GAO,20 and
Treasury,21 are exploring ways to model the impact of tax provisions by race and ethnicity using data matching
and/or imputation
Issue 2: Not All Households File a Federal Income
Tax Return
General y, households must file an annual income tax return, in order to receive tax benefits. But
not al households file tax returns, in many cases because their incomes are too low to require
filing. Specifical y, while any household can file a federal income tax return, general y only those
that have sufficient income to owe income taxes—more than $13,850 for single taxpayers,
$20,800 for single parents, and $27,700 for married couples in 2023 (i.e., the standard deduction
amount in 2023)—must file.22 Households with income below these levels general y would have
no “taxable income” and owe no income tax (even before taking credits into account). Hence,
from the perspective of revenue collection—the main purpose of the tax system—it makes little
sense to require them to file given the burden and costs of doing so. The IRS estimates that it

16 GAO, Tax Equity: Lack of Data Limits Ability to Analyze Effects of Tax Policies on Households by Demographic
Characteristics, GAO-22-104553, May 2022, p. 6, https://www.gao.gov/assets/gao-22-104553.pdf.
17 According to GAO, “Most experts we interviewed did not favor this method [collecting demographic data on tax
forms]. T hey cited concerns with public reaction and the potential for inadvertent consequences of IRS examiners
having access to that information.” GAO, Tax Equity: Lack of Data Limits Ability to Analyze Effects of Tax Policies on
Households by Dem ographic Characteristics, GAO-22-104553, May 2022, p. 14, https://www.gao.gov/assets/gao-22-
104553.pdf.
18 See T racy Gordon and Aravind Boddupalli, New Data Tools and Methods Can Help Federal Policymakers Create
More Equitable Tax Policy, T ax Policy Center, March 22, 2021, https://www.taxpolicycenter.org/taxvox/new-data-
tools-and-methods-can-help-federal-policymakers-create-more-equitable-tax-policy.
19 U.S. Congressional Budget Office, Analyzing How the Effects of Federal Policies May Differ by Race and Ethnicity,
May 6, 2022, https://www.cbo.gov/publication/58030.
20 GAO, Tax Equity: Lack of Data Limits Ability to Analyze Effects of Tax Policies on Households by Demographic
Characteristics, GAO-22-104553, May 2022, https://www.gao.gov/assets/gao-22-104553.pdf.
21 Deputy Secretary Wally Adeyemo and Assistant Secretary for T ax Policy Lily Batchelder, Advancing Equity
Analysis in Tax Policy, U.S. Department of the T reasury, December 14, 2021, https://home.treasury.gov/news/featured-
stories/advancing-equity-analysis-in-tax-policy.
22 For details on 2021 filing requirements for most taxpayer, as well as exceptions, see IRS, Dependents, Standard
Deduction, and Filing Inform ation for Use in Preparing 2021 Returns, Publication 501, June 28, 2022,
https://www.irs.gov/pub/irs-pdf/p501.pdf.
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takes the average taxpayer nine hours to prepare and file an individual return, costing on average
$160.23 Accordingly, for households with no obligation to file a tax return, preparing and filing a
federal income tax return may be a particularly intimidating application instrument. (Some
individuals and households fail to file, even when they are required to do so, because they are
attempting to evade paying the taxes they owe. Data suggest tax evaders are likely a smal share
of al nonfilers.24)
Current estimates indicate that a smal share of people in the United States are nonfilers, meaning
they do not appear anywhere on an income tax return as either the primary filer, a spouse, or a
dependent. The Tax Policy Center estimates that about 15 mil ion households did not file an
income tax return in 2019, while a 2014 report estimated the nonfiling population included about
30 mil ion individuals.25 A 2017 Congressional Budget Office (CBO) study of 2006 tax data
estimated that approximately 17% of households in the United States did not file an income tax
return. According to this study, nonfiling households represented 14% of the U.S. population. Put
another way, about 86% of al individuals in the United States were included on a tax return as
either the primary taxpayer, a spouse, or a dependent.26 A 2014 report using 2011 tax data
estimated about 10% of the U.S. population did not “appear” on a federal individual income tax
return.27
The 2017 CBO study estimated that of al nonfilers, the largest share were unmarried adults under
65 years old without any dependents (37%), followed by adults 65 years or older (31%).28
Nonfiling households had lower incomes on average and were more likely to receive federal
assistance than their tax-filing counterparts.29 Overal , estimates indicate that nonfilers are a
diverse group made up of low-income “students, older adults living on Social Security, people on
public assistance or Supplemental Security Income,” and working people with incomes below the
filing requirement.30 The 2014 study suggested that younger nonfilers were more likely to be
male, while older nonfilers were more likely to be female. Broadly, these results are similar to
older research on nonfilers done by the U.S. Treasury.31

23 IRS, 1040 (and 1040-SR Instructions) Tax Year 2021, December 21, 2021, p. 107, https://www.irs.gov/pub/irs-pdf/
i1040gi.pdf.
24 T axpayers who owe taxes but do not file are a relatively small contributor to the tax gap—about $39 billion of a
gross tax gap of $496 billion, or 8%—according to IRS estimates. See IRS, Tax Gap Estim ates for Tax Years 2014-
2016, Publication 1415 (Rev. 8-2022), August 2022, https://www.irs.gov/pub/irs-pdf/p1415.pdf.
25 Howard Gleckman and Elaine Maag, Free File Is An Easy Way For Government To Get Coronavirus Payments To
Non-Filers, T ax Policy Center, March 30, 2020, https://www.taxpolicycenter.org/taxvox/free-file-easy-way-
government -get-coronavirus-payments-non-filers; and James Cilke, The Case of the Missing Strangers: What We Know
and Don’t Know About Non-Filers, paper presented at the 107th Annual Conference of the National T ax Association,
Santa Fe, NM, November 13-15, 2014, http://tinyurl.com/y7chw254.
26 See T able 5 in Shannon Mok, An Evaluation of Using Linked Survey and Administrative Data to Impute Nonfilers to
the Population of Tax Return Filers, CBO, Working Paper 2017-06, September 2017, p. 39.
27 James Cilke, The Case of the Missing Strangers: What We Know and Don’t Know About Non-Filers, paper presented
at the 107th Annual Conference of the National T ax Association, Santa Fe, NM, November 13-15, 2014,
http://tinyurl.com/y7chw254.
28 See T able 10 in Shannon Mok, An Evaluation of Using Linked Survey and Administrative Data to Impute Nonfilers
to the Population of Tax Return Filers, CBO, Working Paper 2017-06, September 2017, p. 44.
29 See T able 6 and T able 7 in Shannon Mok, An Evaluation of Using Linked Survey and Administrative Data to Impute
Nonfilers to the Population of Tax Return Filers, CBO, Working Paper 2017-06, September 2017, pp. 40-41.
30 Howard Gleckman and Elaine Maag, Free File Is An Easy Way For Government To Get Coronavirus Payments To
Non-Filers, T ax Policy Center, March 30, 2020, https://www.taxpolicycenter.org/taxvox/free-file-easy-way-
government -get-coronavirus-payments-non-filers.
31 Jim Cilke, A Profile of Non-Filers, U.S. Department of the T reasury, Office of T ax Analysis, July 1998,
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Policy Considerations
The federal income tax system is not a universal system, with many nonparticipating households
being very low income. This may complicate policymakers’ goals to create near-universal
programs and/or reach the lowest-income households. Policymakers may try to address this
limitation in a variety of ways. For example, they may try to encourage nonparticipating
households to manual y provide information to the IRS, effectively having these households file
income tax returns (see “Case Study 2A | Nonfiler Portals”). This solution, while broadening the
information available to the tax system, would add to the administrative burden on low-income
households. Policymakers could attempt to lower this burden with easier tax preparation and
filing, including one-to-one outreach and support like “navigators.”32 Alternatively, policymakers
could attempt to use data from other federal or state programs to either administer a tax program
or conduct outreach to certain households (see “Case Study 2B | Using Data from Other Programs
to Administer Tax Benefits”). This approach could reduce the administrative burden on
individuals, but might lead to more errors in administering the program.
Alternatively, policymakers may consider designing tax-based assistance to target families most
likely to file tax returns, while trying to reach the lowest-income households via an alternative
policy mechanism, such as a more traditional cash assistance program. In considering whether to
use an alternative system, policymakers may consider the tax benefit’s structure and duration.
Some argue that in the short and potential y medium term, the IRS may be best suited to deliver
certain types of cash assistance quickly because the agency already possesses critical data on most
U.S. households—including data on family structure, marital status, income, and where to send
payments.33 Others argue that in the longer term, with time to develop the appropriate
infrastructure and data sharing, other agencies like the Social Security Administration (SSA)
could be better suited than the IRS to provide certain forms of ongoing cash assistance to
families.34 Some may argue that joint administration of cash assistance programs between the IRS
and another agency could succeed over the longer term.
Case Study 2A | Nonfiler Portals
Nonfilers can receive tax benefits by manual y providing information to the IRS that the IRS can then use to
administer and issue the benefits. During the COVID-19 pandemic, the IRS developed “nonfiler portals” so low-
income nonfilers could receive stimulus check payments and advance payments of the child credit. Unlike data
from a different program that may be ill suited to administer a tax benefit (see Case Study 2B), the data from

https://home.treasury.gov/system/files/131/WP-78.pdf.
32 T he New America Foundation’s qualitative research indicates that there are a number of logistical barriers to getting
nonfilers to file a return, including that many think that they are not allowed to file a return. T his research was
conducted in regard to the stimulus checks enacted during the COVID-19 pandemic, but may include lessons more
broadly applicable to nonfilers. See Gabriel Zucker and Lindsey Wagner, Talking to Non-Filers: Evidence from
Qualitative Research with Families Who Don’t Regularly File Taxes, New America, July 16, 2021,
https://www.newamerica.org/new-practice-lab/blog/talking-to-non-filers/. For an example of one-to-one outreach, see
Fay Walker, Mary Bogle, and Elaine Maag, Early Lessons on Increasing Participation in The Child Tax Credit, Urban
Institute, May 18, 2022, https://www.urban.org/research/publication/early-lessons-increasing-participation-child-tax-
credit.
33 See, for example, Elaine Maag, Should IRS or Social Security Administer A Monthly Child Benefit? T ax Policy
Center, T axVox Blog, February 17, 2021, https://www.taxpolicycenter.org/taxvox/should-irs-or-social-security-
administer-monthly-child-benefit .
34 See, for example, Sam Hammond and Elaine Maag, Issues in Child Benefit Administration in the United States:
Im agining the Next Stage of the Child Tax Credit, Urban Institute, December 2021.
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these nonfiler portals were used to effectively create a simplified income tax return and hence directly administer
tax benefits.35
Unlike administrative data from other programs, nonfiler portals can request the exact information that the IRS
needs to determine eligibility for and the amount of a payment. But because they require taxpayers to manual y
provide information, they may have limited benefit on their own—that is, without outreach and/or assistance—to
households who historical y do not interact with the tax system. Individuals may be confused by the tax terms
used or struggle if they do not speak English as a first language, have limited access to a computer or the internet,
or require additional assistance. One concern with some of the nonfiler portals initial y deployed during the
COVID-19 pandemic, for example, was that they were not available in Spanish and not mobile friendly. Code for
America, a nonprofit organization, developed an alternative mobile-friendly nonfiler portal for families to receive
the 2021 expanded child credit. The organization’s evaluation of the child tax credit nonfiler portal was that
combining certain outreach strategies with simplified filing using the portal was more successful than either
strategy on its own.36
There is increased interest among some policymakers in simplifying income tax filing for some households,
especial y those with relatively simple tax situations.37 Insofar as the federal government provides more social
benefits through the tax code, nonfiler portals—and the simplified tax returns they generate—may be a tool to
include nonfilers in the tax filing system. For example, policymakers may wish to integrate aspects of nonfiler
portals with partial y or ful y prepopulated returns, perhaps using data from IRS information returns or other
federal programs, if feasible.
Case Study 2B | Using Data from Other Programs to Administer Tax Benefits
A 2017 CBO study on nonfilers suggests this population tends to participate in other benefit programs like Social
Security, Medicare, Medicaid, and SNAP at higher rates than filing households.38 Some might argue that data from
these programs could be used by the IRS to “find” nonfilers, either to administer a benefit directly or for outreach
purposes.
However, data from other benefit programs may be il suited to directly administering a tax program, in particular
because they may lack the relevant information to implement a tax provision. Data from other programs may use
different eligibility rules, different measures of households and income, and different time periods ( e.g., eligibility
for tax benefits is typical y determined on an annual basis, while eligibility for some nontax benefits is determined
on a shorter time frame, such as a monthly basis).
In a 2015 study, Elaine Maag and col eagues from the Urban Institute examined whether SNAP administrative data
could be used to administer a tax benefit, the EITC.39 Maag et al. noted a significant overlap in the population
eligible for SNAP and the EITC in Florida, where the study was conducted. However, the researchers found that
“except in limited circumstances, the information that applicants report to SNAP is not detailed enough to
conclusively verify eligibility [for the EITC].” More broadly, when discussing using SNAP data for tax benefit
administration, Maag et al. noted that from the perspective of administering tax benefits, “data are likely to be
cumbersome to work with and may not be available in a timely manner.”
It is important to note that benefit programs themselves are not universal, so administrative data from federal or
state benefits programs do not encompass the universe of nonfilers. In particular, adults aged 18 to 64 without
disabilities and without children tend not to receive any need-tested benefits.40

35 Nina Olson, What is this thing called … Portal? Procedurally T axing (blog), April 29, 2020,
https://procedurallytaxing.com/what -is-this-thing-called-portal/.
36 Code for America, Lessons from Simplified Filing in 2021, End of Filing Season GetCT C Report , January 2022,
https://files.codeforamerica.org/2022/01/15163938/lessons-from-simplified-filing-in-2021-getctc-report-january-
2022.pdf.
37 See, for example, Lucas Goodman et al., Automatic Tax Filing: Simulating a Pre-Populated Form 1040, National
Bureau of Economic Research, Working Paper no. 30008, April 2022.
38 See T ables 6 and 7 in Shannon Mok, An Evaluation of Using Linked Survey and Administrative Data to Impute
Nonfilers to the Population of Tax Return Filers, CBO, Working Paper 2017-06, September 2017.
39 Elaine Maag et al., Using Supplemental Nutrition Assistance Program Data in Earned Income Tax Credit
Adm inistration: A Case Study of Florida SNAP Data Linked to IRS Tax Return Data , Urban Institute, September 2015,
https://www.urban.org/sites/default/files/publication/71686/2000438-using-snap-data-in-eitc-administration.pdf.
40 See, for example, Figure 2 in CRS Report R46823, Need-Tested Benefits: Who Receives Assistance?, by Gene Falk,
Karen E. Lynch, and Paul D. Romero.
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Some have pointed out that most individuals in the United States are visible to the IRS because they are listed
somewhere on a tax information return filed by a third party with the IRS. For example, even though low-income
seniors may not file federal income tax returns due to their low incomes, they and the IRS are sent SSA-1099s,
Social Security benefit statements. Similarly, many low-income nonfiling workers and the IRS are sent information
returns like W-2s or 1099-NECs. In a 2014 paper, James Cilke estimated that41
The IRS’s Federal income tax reporting “touches” an estimated 99.5 percent of the U.S. resident
population…. Approximately 90 percent of the U.S. population appears on a filed income tax return, while
almost everybody else appears on one or more information returns filed with the IRS.
These studies suggest that data that may not be suitable for the administration of a tax provision could potential y
be used for outreach to nonfilers. Indeed, during the rol out of stimulus checks during the COVID-19 pandemic,
the Center on Budget and Policy Priorities (CBPP) advocated for using data from SNAP and Medicaid not to
directly issue the payments, but rather for “aggressive state outreach” to nonfiling households, which CBPP
estimated could reach 9 mil ion of the estimated 12 mil ion nonfiling households.42
Nonetheless, there may always remain some households—especial y those comprised of working-age adults who
do not receive any federal or state benefits, are not disabled, and do not work (or do not have a documented
work record)—that wil be difficult for any system to find.
Issue 3: Many Households Use Paid Preparers and
Commercial Software
Most families that receive cash assistance through the tax code pay for assistance in preparing
and filing their returns, using either paid tax preparers or commercial software. IRS data indicate
that almost 53% of al 2018 tax returns were prepared by a paid preparer, with a similar share of
low- and moderate-income households using paid preparers.43 Other IRS research indicates that a
significant proportion of low- and moderate-income taxpayers—about 4 in 10—self prepare their
returns using commercial software (including software available through Free File).44 This
contrasts with the administration of nontax social benefit programs, which are typical y
administered using government-provided assistance.45
Paid preparers by definition and most commercial software companies charge fees for their
services—in some cases very high fees—which ultimately reduces the amount of tax-based
assistance families receive. According to one estimate, the fees charged by preparers averaged

41 James Cilke, The Case of the Missing Strangers: What we Know and Don’t Know About Non -Filers, paper presented
at the 107th Annual Conference of the National T ax Association, Santa Fe, NM, November 13-15, 2014,
http://tinyurl.com/y7chw254.
42 Chuck Marr et al., Aggressive State Outreach Can Help Reach the 12 Million Non -Filers Eligible for Stimulus
Paym ents, Center on Budget and Policy Priorities, October 14, 2020, https://www.cbpp.org/research/federal-tax/
aggressive-state-outreach-can-help-reach-the-12-million-non-filers-eligible#_ftn1.
43 For 2018 data, see IRS, Table 22, Statistics of Income Historical T ables, https://www.irs.gov/statistics/soi-tax-stats-
historical-table-22; GAO, Paid Tax Return Preparers: In a Lim ited Study, Preparers Made Significant Errors, GAO-
14-467T , April 8, 2014; and T axpayer Advocate Service, Earned Incom e Tax Credit: Making the EITC Work for
Taxpayers and the Governm ent, Objectives Report to Congress FY2020, Volume 3, July 2019.
44 For example, 41% of 2017 tax returns with an EIT C claim were self prepared using commercial software and 2%
were prepared using Free File. See T axpayer Advocate Service, Earned Incom e Tax Credit: Making the EITC Work for
Taxpayers and the Governm ent, Objectives Report to Congress FY2020, Volume 3, July 2019, p. 24.
45 T he National T axpayer Advocate argued, “T he application process for social benefit programs administered outside
the tax system typically includes government -provided assistance. Unlike those other programs, the IRS has essentially
outsourced significant functions in the EIT C claim and distribution process to the private sector.” T axpayer Advocate
Service, Earned Incom e Tax Credit: Making the EITC Work for Taxpayers and the Governm ent , Objectives Report to
Congress FY2020, Volume 3, July 2019, p. 23.
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$400 for taxpayers eligible for the EITC, or about 16% of the average EITC amount.46 These fees
may vary widely from preparer to preparer. According to one GAO study of 19 paid preparers,
“[t]he fees charged for tax preparation services varied widely across the 19 visits, sometimes
between offices affiliated with the same chain. Often, paid preparers either did not provide an
estimate of the fees upfront or the estimate was less than the actual fees charged.”47
Research suggests that many taxpayers are wil ing to pay these fees, believing that doing so wil
ensure their compliance with the complex rules that govern these tax benefits while maximizing
the benefits for which they are legal y eligible.48 The eligibility rules for family-related tax
benefits like the EITC and the child credit are widely regarded as complex, especial y those
governing who can claim a child for a particular benefit. Low- and moderate-income families
who have lower literacy rates, speak English as a second language, or have nontraditional or
complex family structures (e.g., where the child is not the biological child of the taxpayer
claiming the credit) may find the eligibility rules for family tax benefits especial y confusing.49
Research suggests this complexity may be an important factor in driving low-income families to
use paid preparers.50
While taxpayers may believe paid preparers help them accurately prepare their tax returns and
receive al tax benefits for which they are eligible, the evidence indicates that is not necessarily
the case. According to one GAO study, the most common errors on tax returns, including those
prepared by paid preparers, are errors related to refundable tax credits, suggesting even paid
preparers may struggle to navigate the eligibility rules of these tax benefits.51
Another study that examined erroneous EITC claims found that a large share of returns prepared
by paid preparers included errors, including those returns prepared by attorneys, CPAs, and
enrolled agents. The most common and costliest errors tended to occur among unregulated tax
preparers, often cal ed “unenrolled preparers.”52 The lowest frequency of errors and the least

46 Gabriel Zucker, Cassandra Robertson, and Nina Olson, The IRS as a Benefits Administrator: An Agenda to
Transform the Delivery of EIP, EITC, and CTC, New America, New Practice Lab, March 24, 2021,
https://www.newamerica.org/new-practice-lab/reports/the-irs-as-a-benefits-administrator/; and Figure 5 in CRS Report
R43805, The Earned Incom e Tax Credit (EITC): How It Works and Who Receives It, by Margot L. Crandall-Hollick,
Gene Falk, and Conor F. Boyle.
47 GAO, Paid Tax Return Preparers: In a Limited Study, Preparers Made Sign ificant Errors, GAO-14-467T , April 8,
2014, p. 19, https://www.gao.gov/products/gao-14-467t.
48 “T he high U.S. [tax] preparer usage rate is in part a symptom of the complexity of the income tax syst em, as
taxpayers want to be sure they comply with the law but also want to make sure they take advantage of all the tax breaks
they legally qualify for.” Leonard E. Burman and Joel Slemrod, Tax in America: What Everyone Needs to Know,
second ed., vol. 217 (Oxford University Press, 2020).
49 For more information, see T axpayer Advocate Service, Earned Income Tax Credit (EITC): The IRS’s EITC Return
Preparer Strategy Does Not Adequately Address the Role of Preparers in EITC Noncom pliance , 2015 Annual Report
to Congress, Volume 1, p. 261, https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/08/
ARC15_Volume1_MSP_24_EIT C-Preparer-Strategy.pdf.
50 Gabriel Zucker, Cassandra Robertson, and Nina Olson, The IRS as a Benefits Administrator: An Agenda to
Transform the Delivery of EIP, EITC, and CTC, New America, New Practice Lab, March 24, 2021,
https://www.newamerica.org/new-practice-lab/reports/the-irs-as-a-benefits-administrator/.
51 GAO, Tax Filing: 2021 Performance Underscores Need for IRS to Address Persistent Challenges, GAO-22-104938,
April 2022, p. 15.
52 For more information on unenrolled preparers, see T axpayer Advocate Service, RETURN PREPARER OVERSIGHT:
The IRS Lacks a Coordinated Approach to Its Oversight of Return Preparers and Does Not Analyze the Im pact of
Penalties Im posed on Preparers, 2018 Annual Report to Congress, Volume 1, pp. 105 -116.
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costly errors tended to occur among volunteers trained by the IRS to prepare the returns of low -
and moderate-income families (see “Case Study 3 | Volunteer Income Tax Assistance (VITA)”).
Moreover, since taxpayers are general y legal y responsible for the accuracy of the information on
their tax returns, the cost of these inaccuracies, as wel as the cost of the services themselves, is
ultimately borne by families. The high error rates may also increase scrutiny of taxpayers who
claim family tax benefits like the EITC, contributing to, for example, higher audit rates.53
In lieu of paid preparers, taxpayers who self prepare their returns may use commercial software,
which itself is minimal y regulated. This extends to the IRS’s Free File program, which al ows
low- and moderate-income taxpayers to use free commercial software to prepare and file their
income tax returns.54 The IRS does not general y test any commercial software—including
software offered via Free File—to ensure it wil help taxpayers accurately prepare and file their
returns.55 The lack of regulation, oversight, and testing may contribute to the low usage of the
Free File program.56
Policy Considerations
The use of paid preparers may be convenient for many taxpayers. But the fees charged by paid
preparers effectively reduce the value of tax benefits, which may undercut policymakers’
objectives. In addition, returns prepared by paid preparers can include errors for which taxpayers
are ultimately responsible.
In response to concerns about the cost and accuracy of paid preparers, policymakers have
proposed a variety of different reforms. These include instituting a “public option” government-
provided alternative to commercial software.57 Of note, the law commonly referred to as the
Inflation Reduction Act (IRA; P.L. 117-169) includes a provision that provides the IRS with $15
mil ion to study the cost and feasibility of creating a free direct e-file program (i.e., a public
option).58 Other proposals have included requiring “truth in lending” disclosures of tax
preparation fees so that consumers can make better-informed decisions;59 al owing the IRS to
establish minimum competency standards for paid preparers;60 and having the IRS use data it

53 For more information on EIT C audits, see CRS Insight IN11952, Audits of EITC Returns: By the Numbers, by
Margot L. Crandall-Hollick.
54 For more information on Free File, see CRS In Focus IF11808, The Internal Revenue Service’s Free File Program
(FFP): Current Status and Policy Issues, by Gary Guenther.
55 T axpayer Advocate Service, Earned Income Tax Credit: Making the EITC Work for Taxpayers and the Government,
Objectives Report to Congress FY2020, Volume 3, July 2019, p. 25.
56 See the series, “T he T urboTax T rap: How the T ax Prep Industry Makes You Pay,” ProPublica,
https://www.propublica.org/series/the-turbotax-trap.
57 See, for example, S. 912 in the 115th Congress, as introduced by Sen. Elizabeth Warren. For a discussion of this and
similar legislation, see Dylan Matthews, “Elizabeth Warren has a great idea for making T ax Day less painful,” Vox,
April 14, 2018, https://www.vox.com/2016/4/13/11417676/elizabeth-warren-tax-return-free-filing-tax-day-intuit-hr-
block-turbotax-automatic-simple.
58 See CRS Insight IN11977, IRS-Related Funding in the Inflation Reduction Act, by Brendan McDermott .
59 T axpayer Advocate Service, Earned Income Tax Credit: Making the EITC Work for Taxpayers and the Government,
Objectives Report to Congress FY2020, Volume 3, July 2019, pp. 30 -31.
60 National T axpayer Advocate, “Legislative Recommendation #4 Authorize the IRS to Establish Minimum
Competency Standards for Federal T ax Return Preparers,” in 2022 Purple Book, pp. 9-11,
https://www.taxpayeradvocate.irs.gov/reports/2021-annual-report-to-congress/national-taxpayer-advocate-2022-purple-
book/.
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already possesses to send prefil ed forms to taxpayers.61 This final option, which has been the
subject of recent congressional interest, may work best for low-income workers without children
and with simple tax situations. For example, researchers found that “single individuals with no
dependents, wage-only income, and income less than $100,000—[who] comprised 20 percent of
al return filers ... had a roughly 80 percent success” with prefil ed returns.62 In other words,
prefil ed returns may not be an appropriate option for certain families, especial y ones where the
family’s structure changes from year to year.
Case Study 3 | Volunteer Income Tax Assistance (VITA)
The Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs provide free tax
preparation and filing services to low-income taxpayers during tax filing season. According to the IRS, about
80,000 volunteers at 11,000 sites prepare about 3.5 mil ion tax returns each year.63 About $41 mil ion was set
aside for VITA/TCE funding in FY2022.64
The IRS does not directly run VITA/TCE sites, but rather provides grants to community organizations and
nonprofits to operate sites. The IRS sets forth basic requirements of the sites, and “provides the sponsoring
organization with limited administrative support, grant money, and periodic inspection. The sponsor organization
recruits volunteers to run the site, trains the volunteers, provides equipment like laptops and printers (often paid
for with IRS grants), and oversees the day-to-day operations. Al sites also general y use the same tax preparation
software (TaxSlayer), which is provided by the IRS.”65
VITA volunteers must pass a minimum certification test in order to prepare returns, with higher-level
certifications for some complex tax situations, like preparing returns for servicemembers.66
Research indicates that tax returns prepared by VITA volunteers are less prone to error than returns prepared by
most other types of preparers. One IRS Taxpayer Advocate Report found that in FY2017, VITA/TCE sites had a
93% accuracy rate over al returns they prepared.67 VITA volunteers were also less prone to errors when helping
taxpayers file for refundable tax credits. For example, the most recent IRS study of EITC compliance found that
20%-26% of EITC returns prepared by VITA volunteers had an overclaim of the credit, compared to 35%-44% for
EITC returns prepared by national tax return preparation firms. (The percentages of EITC returns with overclaims
for other types of preparers were 42%-46% by enrol ed agents, 47%-49% by accountants [CPAs], 35% by
attorneys, and 49%-54% by unenrol ed preparers.) The same study also indicated that the errors on VITA-
prepared returns were also less costly compared to other types of preparers.68

61 Lucas Goodman et al., “Automatic T ax Filing: Simulating a Pre-Populated Form 1040,” NBER Working Paper
30008, April 2022; and CRS Insight IN11992, Prefilled Individual Incom e Tax Return Filing: What It Is and Policy
Issues, by Gary Guenther.
62 Jonathan Curry, “Study: Pre-Filled T ax Returns Would Come With T ricky T rade-Offs,” Tax Notes Federal, June 20,
2022.
63 Frank Nolden, Tax Volunteers Support Taxpayers in Need, IRS, https://www.irs.gov/about-irs/tax-volunteers-
support -taxpayers-in-need, updated January 25, 2022. More recent data from FY2021, which include the impact of the
COVID-19 pandemic, indicate that 52,874 volunteers at 8,874 sites prepared 1,977,465 returns with a 96.4% accuracy
rate. IRS, “ T able 9” in Selected Taxpayer Assistance and Education Programs, by Type of Assistance or Program,
Fiscal Year 2021, IRS Databook: Service to T axpayers, https://www.irs.gov/statistics/service-to-taxpayers.
64 See CRS In Focus IF11979, Internal Revenue Service Appropriations, FY2022, by Gary Guenther.
65 Noah B. Metz, “Volunteer Income T ax Assistance During the Pandemic and Beyond,” Tax Notes, vol. 169
(December 21, 2020), p. 1912.
66 IRS, “Volunteer T raining Certification,” https://www.irs.gov/individuals/volunteer-training-certification (updated
April 26, 2022).
67 T axpayer Advocate Service, 2017 Annual Report to Congress, Volume 1, p. 129,
https://www.taxpayeradvocate.irs.gov/reports/2017-annual-report-to-congress/full-report/.
68 IRS, Compliance Estimates for the Earned Income Tax Credit Claimed on 2006 -2008 Returns, Publication 5162 (8-
2014) Catalog Number 66766H, August 2014, https://www.irs.gov/pub/irs-soi/EIT CComplianceStudyT Y2006-
2008.pdf.
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Despite the accuracy and low cost of VITA tax preparation, it is one of the least used tax preparation methods.
Although about 75% of individual taxpayers may be eligible to have their returns prepared by VITA/TCE ,69 only
about 1%-3% of taxpayers use VITA sites. It is unclear what the major drivers of the comparatively low utilization
rate of VITA are, but they could include insufficient funding, taxpayer preference for more convenient options, or
belief that paid preparers wil get them a bigger refund. One volunteer preparer noted that VITA/TCE are
underfunded and staff are overworked, limiting their ability to meet demand.70 The Taxpayer Advocate has also
highlighted that the lack of a year-round presence and the fact that returns with common schedules (like those
associated with gig work) are deemed “out of scope” for VITA volunteers may also discourage taxpayers from
using VITA.71
Issue 4: Data Used to Administer Tax Benefits Are
Generally Annual Data from a Prior Year
Like other provisions of the income tax, eligibility for and the amount of tax benefits a family
receives in a given year are based on prior-year (i.e., lagged) annual tax data. As a result, the IRS
has information on what a household’s situation was in a prior year, but no information on its
present situation, which may differ. In addition, tax data general y do not include information
about within-year fluctuations in income and family structure.
When families apply for tax benefits that they wil receive in that year, they provide their
characteristics—for example, their income and number of children—for the prior year on their
federal income tax returns. For example, taxpayers receive their 2021 EITCs—the EITCs that
reflect their total annual earned income in 2021 and their family structures for 2021—after they
file their 2021 income tax returns in 2022. Most taxpayers had until April 18, 2022, to file their
2021 returns, or until October 17, 2022, if they requested a filing extension. This lag in time
provides taxpayers with flexibility to complete their income tax returns for the prior year, but also
delays when the IRS receives the most recent complete annual tax information for the prior year.
In addition, the data collected for administering federal tax benefits are typical y annual data—
specifical y, annual measures of taxpayers’ marital status, income, and number of children. Tax
filing status for a given year depends on whether a taxpayer is married or unmarried, and whether
or not the taxpayer has dependents. In both cases, these aspects of a household’s status might not
be apparent until the end of the year. Marital (and hence filing) status is general y based on
whether a taxpayer is married on the last day of the year.72 For most tax benefits, dependent
children must live with a taxpayer for more than six months out of the year to be considered a
“qualifying child,” which may only be clear at the end of the year for some households.73

69 T axpayer Advocate Service, 2017 Annual Report to Congress, Volume 1, p. 129,
https://www.taxpayeradvocate.irs.gov/reports/2017-annual-report-to-congress/full-report/.
70 Dylan Matthews, “T he IRS has a big opportunity to fix the way Americans file taxes,” Vox, April 13, 2022,
https://www.vox.com/policy-and-politics/22596072/irs-turbotax-hr-block-free-file-tax-return.
71 T axpayer Advocate Service, 2017 Annual Report to Congress, Volume 1, pp. 128-140,
https://www.taxpayeradvocate.irs.gov/reports/2017-annual-report-to-congress/full-report/.
72 For example, if a couple is married on December 31, 2020, they are generally considered married for all of 2020 on
their 2020 income tax return. (There are exceptions to this general rule.) See IRS, Publication 501 (2021), Dependents,
Standard Deduction, and Filing Inform ation, https://www.irs.gov/publications/
p501#en_US_2020_publink100022072 2.
73 For more information, see CRS Insight IN11634, Child Tax Benefits and Children with Complex or Dynamic Living
Arrangem ents, by Patrick A. Landers and Margot L. Crandall-Hollick.
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Because tax benefits received in a given year are general y based on a family’s characteristics for
the prior year, they cannot reflect monthly or quarterly fluctuations in families’ lives in real time
(see “Case Study 4 | Stimulus Checks Issued During the COVID-19 Pandemic”). In other words,
a tax benefit cannot immediately be provided to a family based solely on its current income in a
given month for two reasons: no such tax data exist at that point (a W-2 has not been generated
and a 2022 return wil not be filed until 2023) and the IRS collects information on individuals’
earned income on an annual basis, not a monthly basis. This is in contrast to other nontax forms
of cash assistance, which may be more responsive to changes in families’ circumstances:
Spending programs typically reflect changes in income and living arrangements throughout
the year, allowing them to be more responsive than tax credits to changes in circumstances.
A person determines who else is in his or her assistance unit, applies for a benefit, is
determined eligible, and then begins receiving that benefit, typically on a monthly basis.74
This lag in data may be of interest to policymakers in light of research on the changing structure
of some families, with a greater share of families changing composition over the course of the
year than in previous decades in ways that could complicate the administration of existing tax
benefits.75 It may also be of interest to policymakers designing tax benefits based on income, as
income can change over time, and income volatility may be more common among individuals
who move in and out of households.76
Policy Considerations
Characteristics of families—like their income and structure—can change from month to month
and year to year, and those changes may not be captured by current tax data. Research suggests
that moderate-income families, and poor families in particular, can experience significant
variations in income from month to month.77 To make the social benefits in the tax code more
responsive to changes in families’ situations, like income, the IRS would need more frequent
and/or timely tax data to be provided by both individuals and employers. Gathering this
information could necessitate taxpayers to manual y update information about their family
circumstances with the IRS (e.g., whether they had a qualifying child for a given month or if their
marital status had changed). It could also necessitate workers and businesses regularly providing
updates of workers’ income. Improved technology (e.g., an IRS account accessible from a mobile
device) could help lessen these burdens, although it is not clear to what extent.
Some experts caution against trying to make the tax system operate more like a traditional benefit
system, as it would sacrifice some of the advantages of using the income tax system, including
ease of use, reduced stigma, and low operational costs.78 Absent creating an entirely new income

74 Sam Hammond and Elaine Maag, Issues in Child Benefit Administration in the United States: Imagining the Next
Stage of the Child Tax Credit, Urban Institute, December 2021, p. 7.
75 Elaine Maag, H. Elizabeth Peters, and Sara Edelstein, Increasing Family Complexity and Volatility: The Difficulty in
Determ ining Child Tax Benefits, T ax Policy Center, March 3, 2016, https://www.taxpolicycenter.org/publications/
increasing-family-complexity-and-volatility-difficulty-determining-child-tax-benefits/full.
76 See Elaine Maag et al., Income Volatility: New Research Results with Implications for Income Tax Filing and
Liabilities, T ax Policy Center, May 25, 2017, https://www.taxpolicycenter.org/publications/income-volatility-new-
research-results-implications-income-tax-filing-and-liabilities/full.
77 Anthony Hannagan and Jonathan Morduch, Income Gains and Month-to-Month Income Volatility: Household
Evidence from the U.S. Financial Diaries, NYU Wagner Research Paper No. 26598833, U.S. Financial Diaries
Working Paper, September 11, 2015.
78 As the former National T axpayer Advocate has written, “But if we want to administer them [benefits] through the tax
system, then we have to understand how they fit into the greater scheme of the tax system, and we can’t just impose a
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tax system based on real-time monthly data, policymakers may want to consider weighing their
policy goals against the limitations of the current income tax system.
Case Study 4 | Stimulus Checks Issued During the COVID-19 Pandemic
During the COVID-19 pandemic, Congress enacted three rounds of stimulus checks. These payments were
structured as temporary one-time refundable tax credits that were issued to households before they had to file
their applicable returns. For example, the first payment enacted as part of the CARES Act (P.L. 116-136) equaled
$1,200 per eligible individual ($2,400 for married taxpayers filing a joint tax return) plus an additional $500 per
eligible child. The payment amount then phased down for higher-income taxpayers. These payments were
structured as a new one-time refundable tax credit for 2020 that was advanced so that payments were received in
2020, as opposed to 2021 (when 2020 income tax returns were filed).
To facilitate implementation, the statute directed the Department of the Treasury to automatical y issue these
payments to households in 2020 if they had filed 2019 income tax returns, determining eligibility based on
information on their 2019 returns. If a 2019 return had not been filed, the statute directed the Treasury to
automatical y issue payments based on 2018 return information. Eligible households who did not automatical y
receive the first payment (or who received less than they would have based on their income and family size as
reported on their 2020 income tax returns) were eligible to receive the payment (or additional amount) as the
recovery rebate credit when they filed their 2020 income tax returns. In contrast, if a household received more
than it was eligible for, the difference did not need to be paid back. The second and third rounds of payments
were structured similarly and based on prior-year tax return information, although the amounts and some
eligibility rules differed.79
The fact that the stimulus check amounts and eligibility were based on older data led to concern that the benefits
were being received by ineligible households, when in fact the households were often eligible based on the statute.
For example, after enactment of the CARES Act, the Washington Post reported a story with the headline “The IRS
sent $1,200 to a rich woman who doesn’t need it. Also, she’s British. And lives in London.”80 Nevertheless, the
woman in question lived in the United States on a work visa in 2018, filed a 2018 income tax return, and was,
according the statute, eligible for the advance payment based on her 2018 return.
Issue 5: Tax Benefits Are Usually Delivered Once a
Year
General y, tax benefits are paid out once a year as a lump sum as part of a federal income tax
refund. Research suggests that some households may value these annual lump sum payments as a
form of forced savings that enables them to make large purchases. For example, some research
has found that some households that receive the EITC use their annual tax refunds as a kind of
forced savings that enables them to make large purchases.81 But households may also use their
refunds to pay for necessities or pay off debt. Hence, policymakers may be interested in paying
out a tax benefit more frequently than once a year to help people meet their ongoing needs.

system that was created for a completely different purpose onto the tax system.” Nina Olson, “T hinking Out Loud
About the Advanced Child T ax Credit —Part I,” Procedurally T axing (blog), June 29, 2021,
https://procedurallytaxing.com/thinking-out -loud-about -the-advanced-child-tax-credit-part-i/.
79 See CRS Report R46415, COVID-19 and Direct Payments: Overview and Resources, coordinated by Margot L.
Crandall-Hollick.
80 Michelle Singletary, “T he IRS sent $1,200 to a rich woman who doesn’t need it. Also, she’s British. And lives in
London.” Washington Post, May 1, 2020.
81 See, for example, Elaine Maag, William J. Congdon, and Eunice Yau, The Earned Income Tax Credit: Program
Outcom es, Paym ent Tim ing, and Next Steps for Research , OPRE, MEF Associates, and the Urban Institute, February
2021, pp. 15-18.
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Some studies indicate that many low- and moderate-income families who receive refundable tax
credits face financial hardship during the year and may take on debt to meet their basic needs or
put off certain expenses (like out-of-pocket health care expenses) until they receive their tax
refunds.82 After they receive their refunds, some households have “an opportunity to catch up, but
then the cycle often repeats.”83 Some research on the child tax credit suggests that some low-
income families prefer receiving regular monthly payments. According to a survey from the
Urban Institute, “45 percent of nonelderly adults living with children who received the advanced
child credit payments in 2021 preferred receiving the credit as a monthly payment, 28 percent
reported no preference in payment timing, and 27 percent preferred a single payment as part of a
tax refund.”84
Under current law, most families receive refundable tax credits once a year as part of their annual
tax refunds. And while some taxpayers may adjust how much is withheld from their paychecks
throughout the year (i.e., they receive little to no refund at tax time because they have had
“perfect withholding”), they cannot have negative withholding. In other words, they cannot adjust
their tax withholding to receive the portion of the refundable credits that exceeds their income tax
liability. Hence, many low-income families, who have little or no income tax liability, can only
receive refundable tax credits once a year in their tax refunds.
However, policymakers have attempted to work around this aspect of tax benefits by issuing tax
benefits before a taxpayer files the applicable tax return, which is often referred to as “advancing”
the tax benefit. Several tax benefits have been paid out before the applicable federal income tax
return is filed—notably the health insurance premium assistance tax credit; the 2021 expanded
child tax credit; and, from 1979 through 2010, part of the EITC.
Crucial y, when policymakers advance refundable tax credits, they have general y based the
advance amounts on retrospective annual tax data to estimate current eligibility. For example,
advance payments of the child credit issued in 2021 were based on an estimate of the 2021 credit
using 2020 tax data on income and family structure. One issue that arises with advancing a
benefit based on older data is if and how to reconcile what is received in advance with what can
eventual y be claimed on a tax return. This is often referred to as “reconciling” or “truing up” the
advance payment. For example, if Congress decided that a $3,000 refundable tax credit were to
be advanced in 2022 based on an estimate using 2021 data—perhaps as 12 monthly payments of
$250—what would happen if a household was only ultimately eligible for a $2,000 credit when it
filed its 2022 income tax return in 2023? Would the household need to pay back al or some of the
$1,000 overpayment of the credit?
Reconciling estimated payments with what a household is actual y eligible for ensures that
households receive the correct amounts of a credit. Reconciling may also discourage taxpayers
from strategical y deciding when to report information to the IRS to receive a larger benefit.
However, reconciliation—depending on how it is designed—could dissuade people from
spending the money they receive via the tax system for fear they might need to pay it back. It
could also result in additional hardship for low- and moderate-income households who spend

82 Elaine Maag, Stephen Roll, and Jane Oliphant, Delaying Tax Refunds for Earned Income Tax Credit and Additional
Child Tax Credit Claim ants, T he T ax Policy Center, December 7, 2016, p. 3; and JP Morgan Chase Institute, Deferred
Care: How Tax Refund Enable Healthcare Spending , January 2018, https://bit.ly/3u68GtN.
83 Steve Holt, Periodic Payment of the Earned Income Tax Credit Revisited , Brookings Institution Metropolitan Policy
Program, December 2015.
84 Elaine Maag and Michael Karpman, Many Adults with Low Income Prefer Monthly Child Tax Credit Payments,
Urban Institute, July 27, 2022, https://www.taxpolicycenter.org/publications/many-adults-lower-income-prefer-
monthly-child-tax-credit -payments.
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assistance for which they are ultimately not eligible and then need to pay it back. The need to
reconcile may be common—especial y if the eligibility for and amount of a tax benefit are based
in part on factors that are likely to change from year to year, like income.85 For example, among
households that received the advance of the health insurance premium tax credit (which is
advanced monthly to health insurers), 57% had an overpayment of the advance on their 2015
returns.86 These overpayments general y need to be paid back, although there are protections for
lower-income households and repayment was waived with 2020 tax returns due to concerns about
economic hardship from the COVID-19 pandemic. Research suggests the majority of households
who repay the premium tax credit do so in the form of a reduced refund.87 However, while
“repayment protection” may benefit taxpayers, it can increase a tax benefit’s overal budgetary
score and lead to concerns about program integrity.
Policy Considerations
The IRS has demonstrated that it can issue tax benefits outside of the normal filing season. Doing
so, however, general y requires policymakers to consider whether and how to reconcile advance
payments with what a household is actual y eligible for when it files a return. Policymakers have
used various approaches for reconciliation when designing tax benefits. Some benefits have not
required any reconciliation (the three rounds of stimulus check enacted during the COVID-19
pandemic, and the premium assistance tax credit in 2020). Other benefits have only been partial y
paid out in advance (the advanced EITC and the advance of the 2021 child tax credit) to reduce
the amount that may need to be paid back with reconciliation. Final y, some benefits have
included provisions limiting how much low- and moderate-income taxpayers must repay if they
received overpayments from the advanced credit (the premium assistance tax credit and 2021
child tax credit).
A tax benefit’s design may help reduce the discrepancy between an advance benefit and the
benefit received on a tax return. For example, if a parameter once used to calculate eligibility for
an amount of a tax benefit no longer affects eligibility or amount, taxpayers wil not need to
reconcile or true up the benefit based on annual changes in this factor. This can occur, for
example, if older income data are not used to estimate eligibility but instead used to determine
eligibility (as was the case with the temporary “income lookbacks” for the EITC enacted as part
of P.L. 116-260 and P.L. 117-2).88 Discrepancies are also likely to be reduced when income, if
below certain levels, does not affect the amount of the benefit, like the “fully refundable” child
credit in 2021 (see “Case Study 5 | Advance Payments of the Fully Refundable Child Tax
Credit”). As these examples highlight, in addition to considering whether and to what extent to

85 T he economist Kathryn Ann Edwards discussed the impact of income volatility and benefit program broadly in
Kathryn Anne Edwards, “America’s Endangered Solution to Child P overty,” Bloomberg Tax, February 8, 2022,
https://news.bloombergtax.com/tax-insights-and-commentary/americas-endangered-solution-to-child-poverty-kathryn-
edwards. Other studies include Anthony Hannagan and Jonathan Morduch, Incom e Gains and Month-to-Month Income
Volatility: Household Evidence from the U.S. Financial Diaries, NYU Wagner Research Paper No. 2659883 , U.S.
Financial Diaries Working Paper, September 13, 2015; Robert Moffitt and Sisi Zhang, “ Income Volatility and the
PSID: Past Research and New Results,” AEA Papers and Proceedings, vol. 108 (May 2018); and Karen Dynan,
Douglas Elmendorf, and Daniel Sichel, “T he Evolution of Household Income Volatility,” The B.E. Journal of
Econom ic Analysis & Policy, vol. 12, no. 2 (December 18, 2012).
86 Letter from John A. Koskinen, Commissioner of the Internal Revenue Service, to Members of Congress, January 9,
2017, https://www.irs.gov/pub/newsroom/commissionerletteracafilingseason.pdf.
87 Leonard Burman, Gordon Mermin, and Elena Ramirez, Tax Refunds and Affordable Care Act Reconciliation, T ax
Policy Center, April 1, 2015.
88 See CRS Report R44825, The Earned Income Tax Credit (EITC): Legislative History, by Margot L. Crandall-
Hollick.
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limit repayment of advanced benefits, policymakers may also consider using program design to
improve ease of administration.
Case Study 5 | Advance Payments of the Fully Refundable Child Tax Credit
The American Rescue Plan Act (ARPA; P.L. 117-2) temporarily expanded the child credit for many taxpayers and
modified its administration. Among other changes, the law made the credit ful y refundable for 2021 only.
Fully Refundable
In the context of the ARPA-expanded child credit, ful refundability meant the credit was the same amount per
child for low- and moderate-income taxpayers, irrespective of their incomes. Specifical y, if an unmarried parent
had income in 2021 under $112,500 ($150,000 for married parents), the credit amount did not vary based on
income. Whether the family had $0, $20,000, $50,000, or $100,000 of income, the credit amount was the same
for a given number of children. (Higher-income taxpayers were subject to a phaseout of the credit based on their
income.) By making the child credit ful y refundable for 2021, ARPA temporarily eliminated the prior-law formula
used to phase in the credit for lower-income taxpayers based on income. Under the prior-law formula, a taxpayer
with more than $2,500 of earned income was eligible to receive a partial benefit from the credit.
While many studies examined the impact of ful refundability on poverty, ful refundability also eliminated the
chance that low- and some moderate-income taxpayers would need to repay advance payments of the child credit
due to changes in income. To understand this, it is important to first understand how the 2021 credit was
advanced.
Advance Payments
The advance payments of the 2021 child credit were based on estimates of the credit taxpayers were eligible to
claim on their 2021 income tax returns. In order to estimate taxpayers’ 2021 child credits, the IRS was directed by
the statute to use data from 2020 income tax returns, or if those were not available, data from 2019 income tax
returns. Since up to half of the 2021 credit could be issued in advance, the IRS general y calculated 50% of the
estimated 2021 credit amount and then issued that in monthly payments. For example, if a married couple filing
jointly listed $75,000 of income and two young children on a 2020 return—and those children were also young in
2021 (i.e., 0-5 years old)—the IRS would have estimated their 2021 credit to be $7,200. The IRS would have
issued half of that amount—$3,600—in six monthly payments of $600, beginning July 15, 2021, and ending
December 15, 2021.
When taxpayers filed their 2021 returns (in 2022), they first calculated the total amounts of the 2021 child credit
for which they were eligible (based on the number and ages of qualifying children, income, and marital status for
2021). Then, taxpayers subtracted from their total 2021 credits the sum of advanced child credit payments they
received during calendar year 2021. For example, if an unmarried taxpayer had two young children (and filed as a
head of household) in 2021 (like they did in 2020), but their 2021 income had actual y fal en to $40,000 , they
would stil be eligible for a total child credit for 2021 of $7,200. Since they would have received half of their total
2021 credit in advance payments in calendar year 2021 ($3,600), they would ultimately claim the remaining half
($3,600) on their 2021 return. As long as this unmarried parent’s income was below $112,500 in both 2020 and
2021, their credit amount would not change even if their income did. (If their income had instead risen to
$350,000 in 2021, they would not have been eligible for any credit in 2021, and would have needed to repay the
$3,600 in advance payments they had received.) Ful refundability effectively removed income as a factor that
would lead to low- and some moderate-income taxpayers needing to repay the advance payments of the credit.
The Treasury Inspector General for Tax Administration (TIGTA) found that the IRS issued 98% of advance child
credit amounts correctly based on the 2020 data used to determine these payment amounts.89 According to this
analysis, errors tended to occur when the IRS advanced a credit for a child that was not ultimately a qualifying
child based on 2020 or 2019 tax data. For example, a taxpayer may have claimed a child incorrectly in 2020 as a
dependent, and the IRS may have erroneously issued an advance payment based on this information.
Notably, other factors, including changes in the number of eligible children from year to year, could have resulted
in overpayments of the advance credit compared to what taxpayers were ultimately eligible to claim based on
2021 tax data. In these cases, Congress enacted repayment protection in the form of a safe harbor.90

89 T reasury Inspector General for T ax Administration, American Rescue Plane Act: Accuracy of Advance Child Tax
Credit Periodic Paym ents, Report Number 2022-47-070, September 21, 2022.
90 For more information on the safe harbor, see Appendix D in CRS Report R46900, The Expanded Child Tax Credit
for 2021: Frequently Asked Questions (FAQs), by Margot L. Crandall-Hollick.
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Issue 6: Some Households Do Not Have or Use Bank
Accounts to Receive Tax Benefits
Some Americans, especial y lower-income Americans, may face difficulties receiving payments
quickly from the IRS because they do not have bank accounts or do not use a bank account to
receive their tax refunds. Most U.S. consumers choose to open a bank account because it is a safe
and secure way to store money.91 However, some U.S. households—often those with low
incomes, lack of credit histories, or credit histories marked with missed debt payments—do not
use banking services. According to the FDIC’s 2021 survey on how America banks, 4.5% of
households in the United States were unbanked, meaning that these households did not have a
bank account.92 Compared with the general U.S. population, unbanked consumers are more likely
to have lower incomes, have less formal education, be of a racial or ethnic minority, and be
disabled.93
Households may not open a bank account for a number of reasons. In the FDIC survey, unbanked
households’ most reported answers for why they did not have bank accounts were because they
did not have enough money, were concerned about privacy, did not trust banks, and wanted to
avoid high and unpredictable bank fees.94 In the past two decades, the availability of free or low-
cost checking accounts has reportedly diminished, and fees associated with checking accounts
have grown.95 Some bank accounts require minimum account balances to avoid certain
maintenance or service fees.96 For consumers living paycheck to paycheck, maintaining bank
account minimums and avoiding account overdrafts might be difficult, leading to unaffordable
account fees.97 At least some of these consumers may be served better by alternative financial
providers if their products are less expensive, faster, and more convenient for some consumers.98

91 In this report, bank accounts refer to checking, savings, and other accounts at all depository institutions, including
banks and credit unions.
92 Federal Deposit Insurance Corporation (FDIC), 2021 FDIC National Survey of Unbanked and Underbanked
Households: Executive Sum m ary, November 2022, p. 1, https://www.fdic.gov/analysis/household-survey/
2021execsum.pdf. (Hereinafter “ FDIC, National Survey of Unbanked and Underbanked Households.”)
93 FDIC, National Survey of Unbanked and Underbanked Households, p. 1-2.
94 FDIC, National Survey of Unbanked and Underbanked Households, p. 3.
95 Consumer Financial Protection Bureau (CFPB), CFPB Study of Overdraft Programs: A White Paper of Initial Data
Findings, June 2013, pp. 15-17, https://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft -practices.pdf;
and FDIC, FDIC Quarterly Banking Profile: Quarterly Incom e Tim e-Series Data, 2022, https://www.fdic.gov/bank/
analytical/qbp/.
96 T he most common fees that checking account consumers incur are overdraft and nonsufficient fund fees. Overdraft
services can help consumers pay bills on time, but fees can be costly, particularly if used repeatedly. For more
information, see T revor Bakker et al., Data Point: Checking Account Overdraft, CFPB, July 2014, p. 5,
https://files.consumerfinance.gov/f/201407_cfpb_report_data-point_overdrafts.pdf.
97 In addition, unpaid fees can lead to involuntary account closures, making it more difficult to obtain a bank account in
the future.
98 For example, although check cashing, money orders, and other nonbank transaction products might charge high fees,
some consumers may incur higher or less predictable fees with a checking account. In addition, such alternative
financial products might allow consumers to access cash more quickly, which might be valuable for consumers with
tight budgets and little liquid savings or credit to manage financial shocks or other expenses. Lastly, nonbank stores
often are open longer hours than banks, including evenings and weekends, which might be more convenient for
working households. Moreover, these nonbank stores might also be more likely to cater to a local ethnic or racial
community, for example, by hiring staff who speak a native language and live in the local community. Although
consumers may find benefits in using alternative financial products substitutes, these products may not always have all
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Households with bank accounts can elect to receive tax refunds via direct deposit. Direct deposit,
usual y to a bank account, is general y a faster and more secure way to receive payments than a
paper check. For 2019 income tax returns, 87% of tax refunds were delivered by direct deposit,
and the rest were delivered by mailing paper checks.99 Some unbanked households may receive
their tax refunds as paper checks, even though some of these households may prefer a faster and
more reliable way to receive direct payments from the IRS.
The IRS does not send al direct deposits to permanent bank accounts. For consumers using
refund advance products, a paid preparer establishes a virtual bank account solely to receive a
given tax refund, and the account cannot be used later for delivering other payments (see “Case
Study 6 | Refund Advance Products and Difficulties Receiving Stimulus Payments”). For al of
these reasons, the IRS may not have some Americans’ bank account information and, therefore,
may not be able to deliver direct payments quickly.
Fast and easy delivery of direct payments—particularly for nonfilers, unbanked consumers, or
those without account information at the IRS—may be especial y valuable. Individuals in these
groups may be more likely to be low income or liquidity constrained (colloquial y, living
“paycheck to paycheck”) and may need access to their payments quickly, especial y during
economic downturns or periods of financial hardship.100
Policy Considerations
Some of the lowest-income and most vulnerable populations may struggle to receive cash
assistance provided through the tax code because they do not have bank accounts. This issue
represents a potential barrier to certain populations receiving the benefits for which they are
eligible. Policymakers may wish to consider alternative delivery mechanisms for tax benefits that
could be accessible to unbanked families. Other government benefit programs like Social
Security have used prepaid cards as an alternative delivery method.
General-purpose prepaid cards may be considered an alternative to a traditional checking account,
and they can be obtained through a bank, at retail stores, or online.101 Prepaid card use is more
prevalent among unbanked households.102 For this reason, prepaid cards may be an alternative
way for the government to reach unbanked consumers for direct payments. Indeed, a growing
number of government programs are using general-purpose prepaid cards to distribute benefits to
unbanked and other consumers, including Social Security payments using the Direct Express
card.103 The Treasury Department has experimented with prepaid cards for receiving tax refunds

of the benefits of bank accounts, such as FDIC insurance or other consumer protections. For more information, see Lisa
Servon, The Unbanking of Am erica: How the New Middle Class Survives (New York, NY: Houghton Mifflin Harcourt,
2017).
99 Approximately 115 million of 158 million total returns were due tax refunds (73%), and of these 100 million were
received as direct deposit (87%) See IRS, SOI Tax Stats—Historic Table 2, https://www.irs.gov/statistics/soi-tax-stats-
historic-table-2.
100 For more information on access to checking accounts and financial inclusion policy issues, see CRS In Focus
IF11631, Financial Inclusion: Access to Bank Accounts, by Cheryl R. Cooper; and CRS Report R45979, Financial
Inclusion and Credit Access Policy Issues, by Cheryl R. Cooper.
101 For more information on prepaid cards, see CRS Report R43364, Recent Trends in Consumer Retail Payment
Services Delivered by Depository Institutions, by Darryl E. Getter.
102 FDIC, National Survey of Unbanked and Underbanked Households, p. 4.
103 For more information on the Direct Express program, see U.S. Department of the Treasury, Bureau of the Fiscal
Service, “Direct Express,” https://www.fiscal.treasury.gov/directexpress/.
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in the past,104 and it provided some stimulus payments issued during the COVID-19 pandemic by
mailing prepaid cards. However, reports suggest some people experienced confusion when
receiving these unsolicited prepaid cards from the federal government,105 and had questions about
how to avoid fees when using these government-provided cards.106 In addition, the Treasury
Department needs up-to-date household addresses to successfully mail prepaid cards to taxpayers;
as previously discussed, the information on federal income tax returns is lagged by one year and
so may not be current.
Prepaid cards can be used in payment networks, such as Visa or MasterCard. They general y have
features similar to debit and checking accounts, such as the ability to pay bil s electronical y, get
cash at an ATM, make purchases at stores or online, and receive direct deposits. Prepaid cards
often have a monthly maintenance fee and other particular service fees, such as fees for using an
ATM or reloading cash.
Case Study 6 | Refund Advance Products and Difficulties Receiving Stimulus
Payments
Refund advance products, such as refund anticipation checks (RACs) and refund anticipation loans (RALs), are
common in the United States. A RAC is an agreement to pay tax preparation fees when a consumer receives a tax
refund, for an additional fee (rather than when a tax preparer files a consumer’s taxes). According to the IRS, with
2019 tax returns, over 21 mil ion people used RACs (19% of households receiving a tax refund).107 According to
the Consumer Financial Protection Bureau (CFPB), RAC fees typical y range from $30 to $50.108 In contrast, a
RAL is a credit product where a consumer receives an advance on an anticipated tax refund. Consumers can be
charged interest and fees on these loans.109 According to the FDIC, 1.0% of households used a RAL during
2021.110 Lower-income and minority consumers were more likely to use refund advance products.111

104 For more information, see U.S. Department of the Treasury, “Treasury Launches Pilot Program of Prepaid Debit
and Payroll Cards for Fast, Safe and Convenient T ax Refunds,” press release, January 13, 2011,
https://www.treasury.gov/press-center/press-releases/pages/tg1021.aspx; and Caroline Ratcliffe, William Congdon, and
Signe-Mary McKernan, Prepaid Cards at Tax Tim e and Beyond: Find ings from the MyAccountCard Pilot, Urban
Institute, March 2014, https://www.urban.org/sites/default/files/publication/22476/413082-Prepaid-Cards-at-Tax-Time-
and-Beyond-Findings-from-the-MyAccountCard-Pilot.PDF.
105 Michelle Singletary, “Stimulus prepaid debit card is causing a lot of confusion,” Washington Post, June 1, 2020,
https://www.washingtonpost.com/business/2020/06/01/faq-stimulus-debit-card/.
106 CFPB, “ How to Use Your Economic Impact Payment Prepaid Debit Card without Paying a Fee,” June 1, 2020,
https://www.consumerfinance.gov/about-us/blog/economic-impact -payment -prepaid-card/.
107 IRS, SOI Tax Stats—Historic Table 2, https://www.irs.gov/statistics/soi-tax-stats-historic-table-2. According to the
GAO, “IRS data on tax-time financial products for 2016-2018 do not accurately reflect product use and the IRS has not
updated reporting guidance to tax preparers. IRS data for 2008 -2016 and information from industry participants and a
consumer advocacy group’s reports suggest that trends in the market for tax-time financial products include the decline
of refund anticipation loans and that refund transfers became the most used product. Industry data also indicate that
product fees for refund transfers increased in 2018; multiple other fees can be associated with tax -time products. New
tax-time products and product features continue to be introduced.” See GAO, Tax Refund Products: Product Mix Has
Evolved and IRS Should Im prove Data Quality, GAO-19-269, April 2019, p. 10, https://www.gao.gov/assets/700/
698292.pdf.
108 Laura Udis, “ T ax Refund T ips: Understanding Refund Advance Loans and Checks,” CFPB, February 13, 2018,
https://www.consumerfinance.gov/about-us/blog/tax-refund-tips-understanding-refund-advance-loans-and-checks/.
109 Laura Udis, “ T ax Refund T ips: Understanding Refund Advance Loans and Checks,” CFPB, February 13, 2018,
https://www.consumerfinance.gov/about-us/blog/tax-refund-tips-understanding-refund-advance-loans-and-checks/.
110 FDIC, National Survey of Unbanked and Underbanked Households, p. 66, https://www.fdic.gov/analysis/
household-survey/2021report.pdf.
111 GAO, Tax Refund Products: Product Mix Has Evolved and IRS Should Improve Data Quality , GAO-19-269, April
2019, pp. 23-27, https://www.gao.gov/assets/700/698292.pdf.
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When consumers use RACs or RALs, a virtual bank account is usual y established solely for the transition. Tax
refunds are deposited into this account, so fees, loans, or other amounts owed can be deducted before the
consumer receives the remaining refund. Often, these temporary accounts are prepaid card accounts.112 Because
these accounts are temporary, future tax benefits cannot be directed to them. For this reason, these consumers
faced difficulties quickly receiving stimulus checks issued during the COVID-19 pandemic from the IRS (these
payments were advances of a one-time refundable credit based on older tax data, including information about
RACs provided on older tax returns). This problem may be especial y important for these consumers, since use of
refund advance products suggests either a lack of funds to pay tax preparation fees or a desire for quick access to
tax refunds. Therefore, this issue may limit rapid payment of tax benefits to those who may be most cash
constrained, and for whom fast payments would be most valuable.
Issue 7: Tax Benefits Can Be Reduced via Offset or
Garnishment Actions
A household’s tax benefits may be reduced to collect past-due debts owed to the federal
government, state or local government, or private creditors. This general y occurs by one of two
mechanisms: offset or garnishment.
Offset
Various payments made by the federal government, including tax refunds, may be reduced before
they are issued—or offset—to collect certain debts. In effect, a payment (e.g., a tax refund) is
reduced to pay these debts before it is issued to a household, providing a mechanism by which the
federal government can collect these delinquent debts.113
Tax refunds—including the portion of refunds from refundable tax credits—are subject to general
offset rules.114 Under these rules, the Treasury’s offsets (reduces) tax refunds to col ect past-due
federal and state income taxes, certain past-due child support debts col ected by child support
enforcement agencies, nontax debts owed to federal agencies, and state unemployment
compensation debts.115 In addition, reductions of nontax federal payments for federal tax debts
are done through the Federal Payment Levy Program (FPLP) in conjunction with Treasury.116
Outside of offset procedures and FPLP, the IRS may reduce tax refunds for federal tax debts.117
At the end of FY2020, the U.S. Treasury reported col ecting about $10 bil ion in unpaid nontax
debts by offsetting tax refunds. Of that amount, $5 bil ion was for state child support debt, $3.5
bil ion was for federal nontax debt (e.g., student loans), $503 mil ion was for state income tax
debt, and $225 mil ion was for state unemployment compensation debt.118 Current data on how

112 H&R Block, “ 0% Interest T ax Refund Advance Loan: Frequently Asked Questions,” https://www.hrblock.com/
offers/refund-advance/.
113 IRS, Topic No. 203 Reduced Refund, May 18, 2021, https://www.irs.gov/taxtopics/tc203.
114 See IRC §6402.
115 31 C.F.R. §258.8, 42 C.F.R. §664, 31 C.F.R. §285.2, 31 C.F.R. §285.8, respectively.
116 See IRS, Federal Payment Levy Program , last updated March 3, 2022, https://www.irs.gov/businesses/small-
businesses-self-employed/federal-payment -levy-program.
117 Past-due nontax debts that can be collected via offset are generally more than 120 days past due, and federal
agencies are generally required to notify the U.S. T reasury of these debts. U.S. Department of the Treasury, Bureau of
the Fiscal Service, Treasury Offset Program (TOP): Frequently Asked Questions for Federal Agencies,
https://fiscal.treasury.gov/top/faqs-for-federal-agencies.html.
118 See Figures 24 and 25 in U.S. Department of the T reasury, “ U.S. Government Non-Tax Receivable and Debt
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much tax refunds were offset for past-due federal tax debts are unavailable, but according to a
report from the Treasury Inspector General for Tax Administration, in 2013, “more than $6.8
bil ion in individual refunds were offset to pay outstanding individual and business tax debts.”119
Offset mechanisms general y apply to other payments issued by the federal government, and are
not unique to tax benefits. However, there are limitations or protections of certain payments from
offset actions. For example, veterans’ pensions from the Department of Veteran Affairs (VA) and
Supplemental Security Income (SSI) are not subject to offset.120
Garnishment
Garnishment of tax refunds general y refers to debt collection actions after a refund has been
issued and deposited in a household’s bank account. Garnishment may be used to collect debts to
governments as wel as private creditors. While the mechanics and legal authority for
garnishment actions differ from offset—and may vary from state to state—they both have the
effect of reducing the amount of a tax refund.
Payments from the federal government that are considered “federal benefit payments”—including
Social Security benefits, SSI benefits, veterans’ benefits, civil service and federal retirement and
disability benefits, servicemember pay, military annuities, and survivor benefits—are general y
protected from garnishment for certain types of delinquent debt.121 Federal tax refunds are not
considered federal benefits payments and are general y not protected from garnishment actions
under current law. Data on the types of delinquent debts collected via garnishment from federal
tax refunds are not publicly available.
Policy Considerations
The collection of past-due debts via offset and garnishment helps to ensure that individuals and
organizations that owe money to the federal government and other creditors ultimately pay these
debts. The repayment of these debts may also have positive benefits for populations who are
owed the debts. For example, collections of past-due child support may benefit families seeking
support from a noncustodial parent.122 But collection activities can also impose significant
burdens on those whose benefits are offset or garnished, especial y if they are low income or
facing a financial hardship.

Collection Activities of Federal Agencies,” in Fiscal Year 2020 Report to Congress, August 2021. By comparison,
about $470 million of federal nontax debt was collected via administrative offset, and $507 million of federal tax debt
was collected by offsetting federal payments (excluding refunds) via the FPLP. T he collection of state child support
debt in 2020 was nearly three times the amount in FY2020 as in the previous four fiscal years, when it averaged
between $1.7 billion and $1.9 billion. T his could be due in part to rules that allowed the first COVID -related stimulus
payment to be offset for past -due child support.
119 T reasury Inspector General for T ax Administration, Revising Tax Debt Identification Programming and Correcting
Procedural Errors Could Im prove the Tax Refund Offset Program , 2016-4-028, March 13, 2016, p. 1.
120 For a list of payments exempt from offset, see U.S. Department of the T reasury, Treasury Offset Program:
Paym ents Exem pt from Offset by Disbursing Officials, May 16, 2022, https://fiscal.treasury.gov/files/dms/
dmexmpt.pdf.
121 For more information on federal benefit payments that are protected from garnishment, see U.S. Department of the
T reasury, Bureau of Fiscal Service, Guidelines for Garnishm ent of Accounts Containing Federal Benefit Paym ents,
March 2020, p. 16, https://www.fiscal.treasury.gov/files/eft/garnishment -guideline.pdf.
122 For an overview of the Child Support Enforcement program , see CRS In Focus, The Child Support Enforcement
(CSE) Program , by Jessica T ollestrup.
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Policymakers may wish to reduce financial hardship for some recipients of tax benefits, for
example by limiting offset or garnishment activities for those whose income is below a certain
threshold, who receive certain tax benefits (like the EITC), or who face another hardship, like
unemployment. Some tax refunds may be partial y protected from offset for past-due federal tax
debts under existing IRS practices. For example, the IRS can provide relief to taxpayers facing
hardship by issuing an Offset Bypass Refund (OBR), which effectively al ows the taxpayer to
receive at least a partial refund to address current financial hardships. The National Taxpayer
Advocate’s research suggests that only a smal share of eligible taxpayers may receive an OBR
prior to their refunds being issued and recommends making “OBRs systematical y available to
taxpayers whose refunds include al owable EITC claims.”123 In other cases, a spouse who files
jointly may be able to protect part of their refund from offset for a past-due debt owed by their
spouse if they are not legal y responsible for the debt as an “injured spouse.”124
Alternatively, policymakers may exempt payments entirely from offset and garnishment
activities, as they did with the second round of stimulus payments enacted during the COVID-19
pandemic, or they may limit offset and garnishment activities for certain types of delinquent
federal debts. For example, some view offsetting the refunds of EITC recipients for certain
debts—including student loans—as at odds with the credit’s goal of ensuring those who work are
not in poverty.125
When determining whether and/or to what extent to protect tax benefits from offset and
garnishment, policymakers may weigh the benefits of collecting certain past-due debts against
any hardship such collections could impose on debtors. How should Congress or the IRS
prioritize the collection of certain debts over others? What would the impact be on other creditors
if they are not repaid and what could the impacts be on borrowers if they think a debt may not
need to be repaid? Can limitations on debt collection action be targeted to vulnerable households,
so that households with sufficient means to repay their debts without fal ing into financial
hardship do pay?
Historical y, the federal government has limited debt collection activities on certain federal
benefits among households that may be facing financial hardship. For example, the federal
government has limited debt collection actions on programs for low-income populations like SSI,
protected portions of tax refunds as part of the IRS’s OBR program, and limited debt collection

123 National T axpayer Advocate, Most Serious Problem #10 COLLECTION: IRS Collections Policies and Procedures
Negatively Im pact Low-Incom e Taxpayers, Annual Report to Congress 2021, p. 175,
https://www.taxpayeradvocate.irs.gov/reports/2021-annual-report-to-congress/.
124 See T axpayer Advocate Service, Injured Spouse, February 11, 2022, https://www.taxpayeradvocate.irs.gov/get-help/
issues-errors/injured-spouse/.
125 Some researchers argued, “ In recognition of the EITC’s role as a critical anti-poverty program and the CT C’s role as
child assistance, both should be exempted from offset, like Social Security benefits.... As a rule of thumb, exempting 85
percent of EIT C/CT C from all debt offset —with the possibility for more generous exemptions in the case of extreme
hardship—would bring EIT C and CT C offsets roughly in line with standard policy for Social Security offsets.” Gabriel
Zucker, Cassandra Robertson, and Nina Olson, “ 1.9 Offset Exemption (for EIT C, CT C),” in The IRS as a Benefits
Adm inistrator: An Agenda to Transform the Delivery of EIP, EITC, and CTC, New America, New Practice Lab, March
24, 2021, https://www.newamerica.org/new-practice-lab/reports/the-irs-as-a-benefits-administrator/.
T he National T axpayer Advocate has proposed that a portion of the EITC received in a refund be protected from offset
for any debt. For example, see National T axpayer Advocate, “ Legislative Recommendation #2, T ax Reform:
Restructure the Earned Income T ax Credit and Related Family Status Provisions to Improve Compliance and minimize
T axpayer Burden,” in 2016 Annual Report to Congress, Volume 1, pp. 325-357. Also see Persis Yu, Voices of Despair:
How Seizing the EITC is Leaving Student Loan Borrowers Hom eless and Hopeless During a Pandem ic , National
Consumer Law Center, July 2020, https://bit.ly/voices-despair-eitc.
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activities on stimulus checks (see “Case Study 7 | Protecting Stimulus Checks Enacted During the
COVID-19 Pandemic from Offset and Garnishment”).
Case Study 7 | Protecting Stimulus Checks Enacted During the COVID-19
Pandemic from Offset and Garnishment
During the COVID-19 pandemic, Congress approved three rounds of stimulus checks that were each structured
as a temporary one-time refundable tax credit advanced using older tax data. (Note that the IRS referred to the
advance payments as economic impact payments, while they were col oquial y referred to as “stimulus checks.”
Any additional amount claimed on a federal income tax return was referred to as the recovery rebate credit.)
Advocates for these payments often discussed them as a way to provide financial relief to households affected by
the economic downturn associated with the COVID-19 pandemic and provide economic stimulus. As such, some
viewed a reduction in these amounts, including through garnishment actions, as undermining the payments’ policy
objectives.126
Because these payments were structured as refundable tax credits, they would have been subject to the general
administrative offset rules under which Treasury offsets (reduces) tax refunds to col ect past-due federal and state
income taxes, certain past-due child support debts col ected by child support enforcement agencies, nontax debts
owed to federal agencies, and state unemployment compensation debts.
However, Congress created special rules for the payments. The CARES Act (P.L. 116-136) exempted the first
round of payments from these offsets except to satisfy past-due child support.
After the first round of payments were approved, the board of directors of the National Child Support
Enforcement Association (NCSEA) adopted a resolution urging Congress to exempt future payments from offset
for past-due child support col ected by child support enforcement agencies. NCSEA’s board of directors urged
Congress to
exclude any future COVID-19 related relief payments from offset for past-due child support until Congress
determines that parents who owe past-due support have enough employment opportunities to be self-
sufficient without a relief payment.
They also noted that:
Most state and tribal child support programs understood the purpose of the payment was to provide
immediate and necessary relief to individuals who may have been impacted by the COVID-19 pandemic. They
preferred that the payment be paid to each parent without being offset for past-due support, as the self-
sufficiency of both parents was the immediate focus.
The Consolidated Appropriations Act, 2021 (P.L. 116-260), and American Rescue Plan Act (ARPA; P.L. 117-2)
exempted the second and third rounds of direct payments from offset, including offsets for past-due child support.
The treatment was different for amounts that individuals received as the recovery rebate credit on their tax
returns. None of the acts provided offset protections for the recovery rebate credit. Notably, the CARES Act, as
original y enacted, did provide such protections, except for past-due child support; however, the Consolidated
Appropriations Act, 2021 amended the CARES Act to remove them, apparently due to administrative
concerns raised by the IRS.127 Thus, al recovery rebate credits were subject to offset under the general rules.
However, the IRS announced that it would not reduce the recovery rebate credits claimed on 2020 and 2021 tax
returns to satisfy past-due federal tax debts.128

126 Pamela Foohey, Dalié Jiménez, and Chris Odindet, “T ime is Running Out to Protect Americans’ Relief Payments
from Debt Collectors,” Harvard Law Review Blog, April 7, 2020. Lauren Saunders and Margot Saunders, Protecting
Against Creditor Seizure of Stim ulus Checks, National Consumer Law Center, May 6, 2020, https://library.nclc.org/
protecting-against-creditor-seizure-stimulus-checks; and Emily Flitter and Alan Rappeport, “ Some Banks Keep
Customers’ Stimulus Checks if Accounts Are Overdrawn,” New York Times, April 16, 2020, https://www.nytimes.com/
2020/04/16/business/stimulus-paychecks-garnish-banks.html.
127 T axpayer Advocate Service, “ NT A Blog: Update on Offset of Recovery Rebate Credits: T he IRS Has Agreed to
Exercise Its Discretion to Stop Offsets of Federal T ax Debts,” April 15, 2022, https://www.taxpayeradvocate.irs.gov/
news/nta-blog-update-on-offset -of-recovery-rebate-credits-the-irs-has-agreed-to-exercise-its-discretion-to-stop-offsets-
of-federal-tax-debts/.
128 See IRS, “ Q F2: Back taxes: Will the credit be applied to back taxes I owe?” (added January 13, 2022), in “2021
Recovery Rebate Credit —T opic F: Receiving the Credit on a 2021 T ax Return,” https://www.irs.gov/newsroom/2021-
recovery-rebate-credit -topic-f-receiving-the-credit-on-a-2021-tax-return; and IRS, “ Q E2: Back taxes: Will the credit
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Separate from the issue of Treasury offset was the question of whether stimulus checks would be subject to
garnishment and other col ection actions by private creditors and debt col ectors. The Consolidated
Appropriations Act, 2021, shielded the second round of direct payments from garnishment and other col ection
actions.129 The CARES Act and ARPA did not include such protections for the first and third rounds of
payments. Some states took actions to protect the payments from these col ection actions,130 and other federal
laws might have provided limited protection in specific circumstances (e.g., for nursing home residents).131
Conclusion
The federal income tax is a near universal system that can be used to provide cash assistance to
low- and moderate-income families. However, this report identifies a variety of issues with
providing assistance through the tax code that policymakers may wish to address so that tax
benefits achieve their policy objectives. Some of these issues may be unique to the tax system—
like the benefits and limitations of using the income tax return as the application for benefits.
Others—like how to deliver benefits to unbanked households—may apply to other types of
assistance provided outside the tax code.
These are not the only issues Congress may consider when developing tax benefits for low- and
moderate-income families. Congress may consider, for example, whether the culture of the IRS—
an agency that has historical y focused on compliance with and enforcement of tax law and less
on benefits administration—lends itself to being the appropriate agency to issue benefits.132
Should the IRS embrace its role as a benefits administrator, as has been done by revenue agencies
in other countries, or does that impede its central goal of collecting revenue?133

be applied to back taxes I owe?” (updated December 10, 2021), in “ 2020 Recovery Rebate Credit —T opic E: Receiving
the Credit on a 2020 T ax Return,” https://www.irs.gov/newsroom/2020-recovery-rebate-credit-topic-e-receiving-the-
credit-on-a-2020-tax-return.
129 See CRS Insight IN11605, COVID-19 and Direct Payments: Comparison of First and Second Round of “Stimulus
Checks” to the Third Round in the American Rescue Plan Act of 2021 (ARPA; P.L. 117 -2), by Margot L. Crandall-
Hollick. T his may have been a result of the rules under which the law that included the second payments was
considered. T he laws creating the first and third stimulus checks were considered under reconciliation, whereas the law
creating the second payment was not.
130 Lori J. Sommerfield and John L. Culhane, “Protection of federal stimulus payments from creditors,” Ballard Spahr
LLP, April 15, 2021, https://www.consumerfinancemonit or.com/2021/04/15/protection-of-federal-stimulus-payments-
from-creditors/.
131 Centers for Medicare and Medicaid Services, “ Nursing Home Residents’ Right to retain Federal Economic Incentive
Payments,” July 11, 2020, https://www.cms.gov/newsroom/press-releases/nursing-home-residents-right -retain-federal-
economic-incentive-payments.
132 According to the former IRS T axpayer Advocate, “To date, the IRS has treated these programs [refundable tax
credits] in the same way it treats other tax administration programs, which is to say, from an enforcement -oriented
perspective. Its emphasis has been on using remote correspondence exam inations, pre-refund fraud detection filters,
and automated summary assessment authorities (math errors), sprinkled sporadically with some outreach efforts (see
the annual EIT C day events).” Nina Olson, “ T hinking Out Loud about the Advanced Child T ax Credit—Part 3: the
Family and Worker Benefit Unit ,” Procedurally T axing (blog), July 1, 2021, https://procedurallytaxing.com/thinking-
out-loud-about-the-advanced-child-tax-credit -part-3-the-family-and-worker-benefit-unit/.
133 For a summary of how Canada, Australia, and the United Kingdom administer their child benefits through the tax
code, see Samuel Hammond and David Koggan, Adm inistering a Child Benefit Through the Tax Code: Lessons for the
IRS from Abroad, Niskanen Center, May 27, 2021, https://www.niskanencenter.org/administering-a-child-benefit -
through-the-tax-code-lessons-for-the-irs-from-abroad/.
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Another factor Congress may consider is whether tax benefits are more sustainable and political y
popular than other types of cash assistance.134 Given recent history, policymakers may also want
to consider whether debating tax legislation under the budget reconciliation process in the Senate
affects their ability to address certain aspects of tax benefit administration.135 By considering
these issues as they create new or modify existing tax-based cash assistance, policymakers may
be able to increase the likelihood that their policies achieve their intended goals.

Author Information

Margot L. Crandall-Hollick
Cheryl R. Cooper
Specialist in Public Finance
Analyst in Financial Economics

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should n ot be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

134 According to some experts, “Benefits delivered through the tax code are, at least for now, more popular than those
delivered through the transfer system.” Sam Hammond and Elaine Maag, Issues in Child Benefit Administration in the
United States: Im agining the Next Stage of the Child Tax Credit, Urban Institute, December 2021, p. 23.
135 See CRS Report R41408, Rules and Practices Governing Consideration of Revenue Legislation in the House and
Senate, by Megan S. Lynch.
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