Advance Child Tax Credits: Payment Information and Garnishments
Included in the American Recovery Plan Act are changes to this year’s child tax credits which require the Internal Revenue Service to send monthly payments to eligible families between July and December, 2021. Families will be eligible for up to $300 per child under the age of 6 and up to $250 per child aged six through seventeen. The IRS indicated the first round of payments will come in on July 15, 2021, with subsequent payments on August 13, September 15, October 15, November 15 and December 15. The payments are expected to be sent out using a 1-day settlement period, and credit unions will likely receive the ACH files on the day prior to settlement. It is also expected that these deposits will come from a company name of “IRS TREAS 310” with an entry description of “ CHILDCTC”.
Some credit unions have asked if these payments are protected from garnishment like some of the economic impact payments the federal government provided in 2020 and 2021. These child tax credit payments are treated similarly to the third round of EIPs in that they are not subject to certain government garnishments but are not protected from private garnishments. Here is the relevant excerpt from the statute:
(e) Administrative Provisions.—
(3) EXCEPTION FROM REDUCTION OR OFFSET.—Any payment made to any individual under this section shall not be—
(A) subject to reduction or offset pursuant to subsection (c), [Offset of past-due support against overpayments] (d)[ Collection of debts owed to Federal agencies ], (e)[ Collection of past-due, legally enforceable State income tax obligations] , or (f) [Collection of unemployment compensation debts] of section 6402 or any similar authority permitting offset, or
(B) reduced or offset by other assessed Federal taxes that would otherwise be subject to levy or collection.
The IRS clarified the scope of protections provided to these payments in FAQs issued in mid-June 2021, most specifically question G4:
A4. Yes. Advance Child Tax Credit payments are not exempt from garnishment by non-federal creditors under federal law. Therefore, to the extent permitted by the laws of your state and local government, your advance Child Tax Credit payments may be subject to garnishment by your state, local government, and private creditors, including pursuant to a court order involving a non-federal party (which can include fines related to a crime, administrative court fees, restitution, and other court-ordered debts).
Some states and financial institutions have chosen to act to protect these payments, however, and these payments are still protected from offset by the federal government. For example, if a taxpayer has a judgment against them obtained by a private party but also owes assessed federal taxes, the IRS will not subject the payment to offset with respect to the federal taxes.
Questions G2 and G3 address issues related to certain past due debts to federal and state governments, and past due child support payments respectively, indicating that these payments will not be offset by such debts.
While the federal statute does not protect these payments from private garnishments, much like with some past rounds of EIPs, states may end up limiting garnishments against the advance child tax credits. For example, the Attorney General for California has already taken this step. More information about these payments is available on this IRS website.
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About the Author
Brandy Bruyere, NCCO was named vice president of regulatory compliance in February 2017. In her role, Bruyere oversees NAFCU's regulatory compliance team who help credit unions with a variety of compliance issues.