The Child Tax Credit Under the House Ways and Means Committee “Build Back Better” Reconciliation Language: Specified Child and Presumptive Eligibility

The Child Tax Credit Under the House Ways and Means Committee “Build Back Better” Reconciliation Language: Specified Child and Presumptive Eligibility

INSIGHTi

The Child Tax Credit Under the House Ways
and Means Committee “Build Back Better”
Reconciliation Language: Specified Child and
Presumptive Eligibility
September 29, 2021
In September 2021, the House Ways and Means Committee approved reconciliation language that would,
among other changes, effectively extend the expanded child credit in effect in 2021 through the end of
2025. Should these changes become law, eligible taxpayers would receive a monthly per-child benefit of
up to $300 for young children and up to $250 for older children through the end of 2025. For 2023-2025,
the proposal modifies eligibility rules and administration of the credit. (After 2025, there would be no
advance payment of the credit under the proposal.)
This Insight first provides an overview of how the 2021 child credit is being issued, followed by an
overview of how the child credit could be administered under the House proposal. It concludes with some
policy considerations with the House approach. Companion Insights summarize the proposed changes and
how the benefit would be calculated under the House proposal.
The 2021 Child Credit and Monthly Payments
While most tax benefits are received once a year as a lump sum after an income tax return is filed, up to
half of the 2021 child credit is being issued in six monthly payments between July and December of 2021
as a result of changes made by the American Rescue Plan Act (ARPA; P.L. 117-2).
Monthly advance payments of the 2021 child credit are based on an estimate of the credit taxpayers are
eligible to claim on their 2021 income tax return. In order to estimate a taxpayer’s 2021 child credit, the
IRS is generally using 2020 tax data on taxpayers’ income, number and age of qualifying children, and
marital status.
Because the IRS is using older data to issue these monthly payments, this information may not reflect
current circumstances in 2021. Income can change, children can move, and couples may divorce or marry
from year to year. In some cases, these changes may result in taxpayers receiving more (or less) in
advance payments than they are actually eligible for when they file their 2021 return. In cases where a
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taxpayer receives less, they will generally be able to receive additional amounts as part of their tax refund.
In cases where they receive more, they would have excess payments of the credit and could need to repay
that excess amount.
Safe Harbor
Under ARPA, low- and moderate-income taxpayers who receive excess advance payments of the credit
due to changes in the number of qualifying children between 2021 and 2020 may be protected from
paying back some or all of these excess payments due to a safe harbor. (For more details on the safe
harbor, see Example 2.) The House reconciliation language would extend a modified version of this safe
harbor through 2022.
The Proposed 2023-2025 Credit and Monthly Payments
The reconciliation language temporarily suspends the current credit and replaces it with a new monthly
benefit for 2023-2025. The proposal is broadly intended to allow the credit to be more “portable” if
children move between taxpayers during the year, and limit repayment obligations in certain cases.
Monthly Payments
As with the 2021 child credit, monthly advances of 2023-2025 credit would be made using older data on
taxpayers’ annual income, number and age of “specified children,” and marital status. If a taxpayer was
presumed to be eligible for a specified child—that is, they had “established a period of presumptive
eligibility” for the specified child—the taxpayer would generally receive monthly advance payments of
the credit for that child (unless they elected not to).
And like the 2021 credit, there may be concerns that a taxpayer may receive an advance payment based
on older data that do not reflect their current circumstances. To limit repayment obligations in such cases,
the proposal also includes a provision that if the advance payments for a specified child were issued
during a period of presumptive eligibility, the taxpayer would in most cases be deemed eligible and hence
guaranteed the benefit. (The proposal also includes an “income lookback” provision that will largely
eliminate repayment due to annual changes in income.)

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Presumptive Eligibility
A period of presumptive eligibility could be established by the Treasury Secretary based on information
on a prior-year tax return, information provided on an online portal, or another manner the Treasury
Secretary prescribed. Taxpayers would need to certify that they would expect to be able to claim the child
as a specified child for at least three months. (Electing not to receive advance payments would not prevent
a taxpayer from being considered presumptively eligible for the benefit.)
A period of presumptive eligibility could last up to a year, but would end earlier in cases of fraud/reckless
disregard, if another taxpayer made a claim for that child as their specified child (a “disputed claim”), or
if the Treasury Secretary had other information that called into question the taxpayer’s eligibility to claim
that child. Taxpayers would generally be notified when a period of presumptive eligibility had ended.
Policy Considerations
The new eligibility definition and presumptive eligibility are designed to make the credit more flexible to
reflect family circumstances. However, they also introduce new complexity into the tax code, creating a
novel definition of eligibility that differs from definitions used for other child-related tax benefits like the
earned income tax credit (EITC). It is unclear how the IRS will be able to accurately determine when a
taxpayer has a specified child given the limited data on where children live for a given month and who
cares for them. Presumptive eligibility may lessen these concerns, since a taxpayer who has established a

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period of presumptive eligibility for a specified child is effectively deemed eligible and hence guaranteed
the benefit.
But presumptive eligibility raises its own questions. What will the processes be for establishing
presumptive eligibility? How will the IRS determine fraud or reckless disregard by a taxpayer when
establishing presumptive eligibility, as opposed to taxpayer confusion and honest mistakes? What will a
taxpayer’s recourse be if the IRS makes an incorrect determination of a period of presumptive eligibility?
And in cases where two taxpayers have a specified child for the same time period, would presumptive
eligibility place different and potentially inequitable burdens on them in order to receive the benefit (see
the example below)?

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Author Information

Margot L. Crandall-Hollick

Specialist in Public Finance

Disclaimer
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