Stimulus Update: Millions of People Didn't Get Their Child Tax Credit Payments in 2021 -- and Many Got Payments in Error

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  • Last year's boosted Child Tax Credit rendered millions of households eligible for monthly payments beginning in July.
  • While the IRS got that money out to most recipients, a good 4.1 million people were skipped over.
  • In addition, approximately 1.5 million Americans received funds in error.

The IRS goofed in several ways in the course of managing Child Tax Credit payments last year.

When the American Rescue Plan was signed into law during the first quarter of 2021, the U.S. economy was in pretty bad shape, and many households needed relief. That relief came in the form of not only stimulus checks, but also, a boosted Child Tax Credit.

Prior to 2021, the maximum value of the Child Tax Credit was $2,000 per eligible child. Last year, that maximum value increased to $3,600 for children under age 6 and $3,000 for those aged 6 to 17. Half of the boosted Child Tax Credit was also made available to eligible recipients in the form of monthly installment payments that hit bank accounts from July through December.

Of course, sending that money out to the masses in a timely fashion was no easy feat. And a recent report by the Treasury Inspector General for Tax Administration revealed that the IRS actually did a pretty good job of sending out Child Tax Credit payments to those who were eligible.

At the same time, the agency failed to send those payments to several million recipients who were entitled to that money. And it also sent a large number of payments to people who weren't eligible in the first place.

Millions of people were missed

First, the good news -- the IRS accurately issued 98% of the aid it was supposed to give out under the boosted Child Tax Credit. To give credit where it's due, that's a big deal, because the IRS didn't exactly have months upon months of notice to get those payments out, and it was also tasked with pumping out stimulus checks to eligible Americans.

But still, the IRS is said to have skipped about 4.1 million households who were eligible for the boosted Child Tax Credit. And that means many households may still be missing money they're entitled to. At a time when living costs are soaring due to inflation, that's problematic.

What's also disturbing is that the IRS reportedly issued over $1.1 billion in erroneous payments. All told, a good 1.5 million taxpayers who were not actually entitled to installment payments under the boosted Child Tax Credit wound up receiving funds.

Now on a positive note, the IRS has already taken steps to correct its mistakes. But still, it may be that some households are still sitting on funds they were never eligible for in the first place while others are missing income they could really use.

If you got a payment in error

There are different reasons why some taxpayers were sent Child Tax Credit installment payments in error. In some cases, the children those payments were for were too old to qualify in 2021. In other cases, it may have been that multiple parents claimed the same child on their respective tax returns (for example, a divorced couple who files separate returns).

The IRS has been sending letters out to those who received Child Tax Credit payments in error, and in most cases, you'll need to be prepared to pay that money back. Now you may be able to satisfy that balance through a reduction in your next tax refund. But if the amount you owe exceeds your refund, you'll need to work with the IRS to pay that money back. Just as the agency lets tax-filers set up installment plans for regular tax bills they can't pay in full, so too will the agency allow that in this situation.

Is the boosted Child Tax Credit gone for good?

The boosted Child Tax Credit seems to be off the table for 2022. We're already into October and lawmakers have yet to find a way to make an enhanced credit a reality. And no installment payments have been made for the credit this year.

But lawmakers also haven't given up on bringing a boosted version of the credit to life. And while they'll need to agree on the specific details, it's fair to say that at some point in the not-so-distant future, we could see a much more helpful, generous version of the Child Tax Credit than the one that's currently in play.

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