The Importance of Minimizing the Risk of Repayment When Delivering Monthly Child Tax Credit Payments: Lessons from the United Kingdom, Australia, New Zealand, and Canada

25 Pages Posted: 15 Jul 2021

See all articles by Kathleen Bryant

Kathleen Bryant

Tax Law Center

Chye-Ching Huang

New York University School of Law

Jane Millar

Institute for Policy Research, University of Bath

Peter Whiteford

Crawford School of Public Policy, Australian National University; Social Policy Research Centre, University of NSW

Date Written: July 13, 2021

Abstract

Child Tax Credit (CTC) improvements in the American Rescue Plan (ARP) will reduce child poverty by 40%, make the federal tax code more equitable and inclusive, and should be made permanent. The ARP provides for advance monthly CTC payments in 2021. This delivery system gives families flexibility and may help them meet their basic needs. However, as currently designed, it will also cause some households to receive advance CTC payments they will be required to repay at tax time.

The United Kingdom, Australia, and New Zealand faced large-scale repayment issues after implementing similar child tax credit or benefit programs. Public outcry prompted administrative and legislative remedies in these countries, such as mass forgiveness of “tax debt,” program design revisions, and changes to IT systems. The design of Canada’s child benefit program largely avoids but does not eliminate the need for some families to repay benefits to the government.

Though well-documented in comparative literature, repayment problems in other countries have received surprisingly little attention in US CTC delivery design discussions. This may stem from a misapprehension that repayment issues in other countries are entirely due to changes to income experienced by families. However, evidence from other countries demonstrates that changes to family circumstances are also a substantial source of repayment issues.

The ARP’s advance CTC payments delivery system includes protections for low- and middle-income families against repayment-related hardships caused by income fluctuations, such as relatively high phase-out thresholds. Not fully addressed, however, are repayment risks due to changes in family circumstances.

Repayment risks are not the only potential cause of hardship or program instability in designing a delivery system for advance CTC payments. This paper does not review all of these—sometimes competing—considerations. Instead, it presents evidence of other countries’ struggles with repayment risks so that lawmakers can weigh design tradeoffs with a clearer understanding of the costs.

As lawmakers work to extend or make permanent advance CTC payments, experiences from other countries suggest they should prioritize designs with built-in protections against repayment issues caused by changes in family circumstances. A CTC delivery system designed at the outset to eliminate or reduce repayment risks will both spare families from needless hardship and decrease the likelihood that future legislative or administrative adjustments will be necessary.

Keywords: child tax credit, tax credit reconciliation, benefit reconciliation, advance payments, monthly payments, lump sum, repayments, IRS

Suggested Citation

Bryant, Kathleen and Huang, Chye-Ching and Millar, Jane and Whiteford, Peter, The Importance of Minimizing the Risk of Repayment When Delivering Monthly Child Tax Credit Payments: Lessons from the United Kingdom, Australia, New Zealand, and Canada (July 13, 2021). Available at SSRN: https://ssrn.com/abstract=3883655

Chye-Ching Huang

New York University School of Law ( email )

Jane Millar

Institute for Policy Research, University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Peter Whiteford

Crawford School of Public Policy, Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia
61 2 61254295 (Phone)
61 2 61255448 (Fax)

HOME PAGE: http://https://crawford.anu.edu.au/people/academic/peter-whiteford

Social Policy Research Centre, University of NSW ( email )

Kensington
High St
Sydney, NSW 2052
Australia

HOME PAGE: http://https://www.sprc.unsw.edu.au/about-us/people/peter-whiteford/

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