An audit issued by the Treasury inspector general for tax administration last week reviewed the accuracy of child tax credit disbursements made by the IRS between July and November 2021. The report found that the organization sent more than $1.1 billion in payments to ineligible taxpayers and failed to send another $3.7 billion to eligible taxpayers.
The American Rescue Plan Act was enacted in 2021 and increased child tax credit payments to $3,000 per child under 18 and $3,600 per child under 16.
The IRS incorrectly distributed 3.3 million payments to 1.5 million ineligible households. The organization also failed to deliver 8.3 million payments to 4.1 million eligible households.
The audit noted that despite the millions of incorrect or failed disbursements, 98% of the child tax credit payments made by the IRS between July and November 2021 were correct.
Wage and investment division commissioner Kenneth C. Corbin wrote in response to the audit, "Achieving this level of accuracy within the limited timeframe provided required a significant amount of collaboration among several agencies within the Department of Treasury."
Taxpayers who incorrectly received payments were later determined to be disqualified because their children either did not meet age requirements, were deceased, or were claimed on another tax return.
According to the audit, those ineligible taxpayers may be required to repay the funds. Those who should have received payments, but did not, were directed to claim the amount on their tax returns.
Regarding qualified households that did not receive the payments, IRS management stated that they found several programming errors that caused the mistake.
For example, one error "erroneously excluded taxpayers who had an Individual Taxpayer Identification Number," and another "occurred when only one spouse updated their bank account information" in the tax credit portal.
The audit stated that the IRS also fixed multiple programming errors that caused "certain taxpayers to be excluded from receiving a periodic payment."
The inspector general's office provided the IRS with five recommendations to avoid similar errors in the future, including preventing additional improper payments, informing taxpayers if their advance payments may have been sent to another account, and validating incoming files from third-party sources.
According to the report, the IRS agreed to all of the recommendations.