Filing Taxes Can Get Families Thousands of Dollars in Flexible Cash
This week would have marked the seventh payment of the expanded Child Tax Credit, which has been putting up to $300 per child per month into the bank accounts of many families since last summer.
But with the fate of the Build Back Better bill uncertain, families will have to figure out how to make ends meet without this monthly cash infusion. The timing of this uncertainty is terrible, with prices for goods at record highs and the pandemic resurgent with the Omicron variant.
The good news is that, despite the loss of the monthly payments, many families could still get over $10,000 in benefits if they file a 2021 tax return this season:
- The six monthly payments that started in July were advances on the 2021 Child Tax Credit (CTC), totaling half the credit. Families must file now in 2022 to receive the second half of that CTC (up to $1,800 per young child, or $1,500 per older child). Families who missed out on the monthly payments can receive the entire 2021 CTC ($3,600 per young child, $3,000 per older child) by filing this year.
- The American Rescue Plan also significantly expanded the 2021 Earned Income Tax Credit (EITC) for adults without children. Not only are more people eligible, but the maximum credit amount is triple what it used to be (now about $1,500). People must file now in 2022 to access this expansion. That’s to say nothing of the existing EITC for people with children, which every year offers up to $6,000 for some families.
- Families who missed out on the third Economic Impact Payment (the stimulus check of $1,400 per household member) can get it when they file their return this year. (They can also get their first two EIPs if they file back-taxes for 2020.)
- Plus, if Congress does act later this year to extend the CTC and turn monthly payments back on, the families who filed returns this year will be in line to get the money.
For a family with two parents and two young children earning $16,000 who didn’t file in the last two years, these credits would total $18,780; the credits, combined, more than double their income. Even if this family had filed last year, they would still get $9,580. But they will only receive these benefits if they file. More than ever before, we need every family, no matter their income, to file a tax return this year.
And yet, with all the media attention surrounding the lapsed monthly payments and the stalled Build Back Better bill, some families may mistakenly think that the CTC is over, and there is no reason to file this year. Organizations and agencies involved in outreach and implementing the CTC program need to help get the word out that 2021 CTC payments are still available, potentially along with other sizable tax benefits, and that people need to file a tax return at some point this year to receive them.
More than ever before, we need every family, no matter their income, to file a tax return this year.
Send clients to GetYourRefund.org
That is why, at Code for America, our focus and resolve on this filing season hasn’t changed at all. We plan to again serve families with our Volunteer Income Tax Assistance (VITA)-based tool GetYourRefund (GYR), and our simplified filing tool, last year called GetCTC. But even with a simplified tool, the overall tax system is complex. We’ll need all hands on deck to help make sure families understand their options and get to the right place to access the benefits they are due.
Here’s what you need to know: GetYourRefund.org will be live starting on January 31, and any taxpayer with a low income will find a good tax filing solution there. The page will contain an interactive triage tool that asks families questions about their tax situation and comfort with taxes, and recommends the best filing option for them. Starting in late January, families will be able to file returns through VITA—virtual full-service VITA using GetYourRefund, traditional in-person VITA, or virtual “do-it-yourself” VITA. Families who would be eligible for simplified filing (of the type offered by GetCTC last year) will be encouraged to sign up for updates, and we’ll alert them when simplified filing is available—although this unfortunately won’t be until later, likely April or May. Throughout the season, we’ll keep GetYourRefund.org updated with the latest available tools and information.
We’ll need all hands on deck to help make sure families understand their options and get to the right place to access the benefits they are due.
Simplified filing and GetCTC
Simplified filing, as implemented last year on GetCTC and on the IRS Non-Filer Tool, is the idea that families provide only the information that they—and not the IRS—have. Families provide their bank account information, and they report which children are theirs, because the IRS does not have this information, and no other federal agency reliably does either. Simplified filing is made possible through a Treasury regulation which allows families without tax filing obligations (generally those earning under around $12,500 single or $25,000 married, and without significant self-employment income) to skip many elements of a traditional tax return. Critically, they don’t have to report their income, or track down their W-2 and 1099 forms. In 2020 (for 2019 tax returns), simplified filing got filers the first two EIPs. In 2021, it got them all three EIPs and Advance CTC payments.
We saw in 2021 that simplified filing worked. By mid-October, GetCTC was accepting thousands of returns per day. Families were generally finishing the form within 10-15 minutes, and the overwhelming majority needed no assistance to do so. Four in five reported they found the form “easy” or “extremely easy.” The basic bet—that streamlining the information required on a return makes it easier to complete—paid off. More details of this success are forthcoming shortly, when Code for America releases our 2021 end of season filing report, with details of the GetCTC client experience, as well as new research insights on 2021 outreach efforts.
But simplified filing is authorized each year by a Treasury regulation. (“Revenue Procedure” is the technical jargon.) This year’s regulation hasn’t come out yet. Once it does, we (and any other software providers interested in providing simplified filing) need to authorize our ability to fulfill the IRS procedure correctly and update our forms to relaunch. After the regulation is released and we see the substance of it, we will have a better understanding of the timing of when GetCTC will be available again.
Improving simplified filing in 2022: GetCTC 2.0
Simplified filing in 2021 was a big success—but it can be better yet. With several improvements to the simplified filing regulations, we can better serve clients, reach more of them, and get them access to even more tax benefits this year.
First: Simplified filing to date has had a large, EITC-shaped hole in the middle of it. Consider a single mother with one young child earning a $12,000 salary, for whom the barriers of filing a full traditional tax return are very high. In 2021, she could finally use GetCTC to claim all three EIPs and Advance CTC—a total of $7,500. But she was also eligible for over $3,500 in EITC. By using the simple process, she passed up a huge amount of money that she deserves. This year, now that she has already received the EIPs, the problem is even worse; her simplified filing would get her $1,800 in residual CTC payments, but she would be passing up twice that sum in EITC. And this amount will be especially pertinent given the status of Build Back Better; for some families, this non-trivial amount of EITC could help fill the gap created by the absence of monthly payments.
The solution is as straightforward as the problem: allow this single mother to claim the EITC using her simplified filing submission. The EITC has other eligibility rules not relevant to the CTC, but she can report these on her simple return. The precise amount of the EITC is also dependent on income; but the IRS knows her W-2 income, since the agency gets it directly from her employer. In fact, if she filed a full return, the IRS would use that data to check that she reported her W-2 income correctly. (If she had significant non-W-2 income she couldn’t use the form, unfortunately.) Given the additional eligibility criteria—which we would build in—the IRS can reliably calculate her EITC amount.
Second: Consider what happens with families who received CTC advance payments last year. When they use simplified filing this year to claim the rest of the payment, will they simply report their eligible children, and the IRS will figure out how much residual credit to pay? Or will families need to figure out how much they are eligible for in total, then look up and calculate the exact amount they received in advance payments last year, and then subtract one number from the other? The latter process is unnecessarily complicated for families—but this is what the IRS required of simplified filers who wanted to claim the first or second EIPs last year, and what the IRS is requiring of traditional full filers this year. The IRS is currently sending notices to CTC recipient families summarizing their advance payments to make such a reconciliation easier—but many families may have moved and will not receive the notice, or will lose track of it between now and when they file later this year. Indeed, despite sending similar notices for EIPs last year, many families got their 2021 EIP reconciliation wrong, and had their returns stuck for months in manual review queues at the IRS. We hope the IRS learns from this mistake and does not require this reconciliation from simplified filers for AdvCTC payments.
Third: Residents of Puerto Rico, newly eligible for the CTC, should also be able to use a simplified Form 1040 to claim the CTC. Current policy dictates that they have to use the rather complicated Form 1040-SS, which does not currently have any simplified electronic implementations. If the IRS allows Puerto Rico residents to use a 1040, we can modify our software to accommodate them and potentially reach millions of additional families eligible for the CTC.
There are still substantial tax benefits available to meet the needs of families in this difficult time.
The 2022 tax season is as important as ever
The failure of the Build Back Better bill to pass in 2021 is disappointing, but there are still substantial tax benefits available to meet the needs of families in this difficult time. And, there are ways for the Treasury Department and IRS to improve and scale access to these benefits without any action from Congress.
In the meantime, our GetYourRefund service will be open on January 31st—along with every other traditional tax filing option. Community organizations, partners, and agencies should send their clients to GetYourRefund.org and we will direct them to the appropriate type of tax preparation service. We will also continue to provide updates on when GetCTC will be available for clients who are depending on the simplified service that helped so many access the stimulus payments and Child Tax Credit last year. Lastly, Code for America will be releasing a report later this month with our detailed findings on all our learnings from the 2021 filing season.
Building on these insights, this year, we and our partners in this movement are poised to deliver billions of dollars to millions of families.
It’s not time to mourn the Build Back Better bill; it’s time to get money to the families who need it.
Interested in more of our findings pertaining to the GetCTC client experience, common issues clients faced, outreach methods to drive clients to the tool, assistance that clients did (and did not) need, and other issues our clients saw outside the scope of simplified filing? Download our summary report.