Should IRS Or Social Security Administer A Monthly Child Benefit?

President Biden, the House Ways & Means Committee, and Senator Mitt Romney (R-UT) agree: They want to increase child benefits to parents who work and those who do not, and they want to deliver benefits regularly throughout the year rather than waiting until families file their tax returns each spring.

But what federal agency should administer such a program—the IRS or the Social Security Administration (SSA)?

Neither SSA nor IRS is the obvious best choice. In the short-term, the IRS holds a slight edge: It has political support and expanding a program is easier than starting a new one. In the long-term, SSA may be better because it has experience delivering monthly payments and shifting benefits when families change. But transitioning from a tax credit delivered by the IRS to a child allowance delivered by SSA might prove difficult and should be done cautiously.

What is the proposed policy?

The House Ways & Means Committee and President Biden would make the child tax credit (CTC) fully refundable, which means even very low-income families would get the full credit. This is a departure from current policy. The credit would continue to be administered by the IRS, but it would be delivered monthly or quarterly.

Romney, by contrast, has his eyes set on a monthly child allowance administered by SSA.

Which agency would likely reach more children?

Any new benefit will succeed only if it can actually reach children. The IRS now delivers a tax benefit to 95 percent of all families with children. About half of the children it misses are in high-income households that are ineligible for the benefits.

But half are in low-income households that would mostly be eligible for the expanded CTC. Some children live in households that don’t file a tax return because their income is too low, even though tax is being withheld from their paychecks. Others may live in households that file a return but are ineligible for a benefit because they do not meet all the eligibility criteria.

Reaching children whose parents don’t file taxes will be difficult for the IRS. In 2021, this might be simpler than in years past, since some families either used the IRS non-filer portal to claim an economic impact payment or received a COVID relief payment based on information the IRS received from SSA. Either way, the IRS has reasonably recent information on those families.

SSA has a more complete registry of all children since almost all parents apply for a Social Security Number for their newborns. But SSA has little current information about where to send payments.

Even if it could match children with parents, SSA still would not know where to send the payments since it generally does not track address changes for children. The one exception: SSA does send payments to 6.5 percent of children who are eligible for a monthly benefit from Social Security. But that’s not much of a base to work from if the Administration wants to stand up a program quickly.

Which agency would be better at delivering regular payments?

Monthly or quarterly payments would be much more helpful for cash-constrained families than annual ones. My TPC colleague Howard Gleckman and I suggested the IRS could administer the advance payments – but only with substantial additional resources.

SSA, on the other hand, already delivers payments to about 69 million people each month. A universal child allowance would double its workload. Still, while both agencies would need time and funding to deliver a monthly child benefit, SSA is closer to reaching this goal than the IRS.

Which agency can adjust to changes in family structure?

Family structure evolves throughout the year for many people. Parents marry and divorce. Children move among different households. As a result, advancing the child tax credit means some people will receive payments for which they will be ineligible while others may receive less than they are owed.

The Ways & Means legislation allows that some CTC payments made in error will not need to be paid back, limiting the risk that low-income parents will face a surprise tax bill when they file their returns. The legislation would not provide payments until July, so advance payments may not present a problem this year.

But changes in family structure that lead to erroneous payments would be an issue if Congress continues the program. The annual nature of filing a tax return limits the IRS’s ability to deliver a partial credit to multiple households caring for a child over the course of the year.

SSA determines eligibility for some benefits monthly, and it can respond to changes such as when a child who receives Supplemental Security Income (SSI) moves from one household to another. In that case, the benefit could follow the child. It does not have a system to track changes in family income so may not be able to react in real time to a benefit that phases out with income. 

Are payments from SSA treated differently than tax credits from the IRS?

In general, benefits delivered through the tax code by IRS don’t count as income for purposes of determining eligibility for other federal benefits such as Supplemental Nutritional Assistance Program (SNAP, formerly food stamps). Payments from SSA, on the other hand, typically do count as income when determining eligibility for other benefits.

Congress could make an exception for a child allowance administered through SSA, but that might be confusing for those receiving both child payments and, say, SSI. Legislators would need to be careful transitioning from a tax benefit to a child allowance, making sure to minimize unintended consequences.

Over the long run, SSA’s flexibility and its experience delivering monthly payments might make it the better agency to deliver a regular child benefit. But if lawmakers want to stand up a program quickly, IRS seems like the better bet.