Millions of eligible families did not receive monthly child tax credits, while more than 1 million ineligible taxpayers did

The Internal Revenue Service failed to send $3.7 billion in monthly child tax credit payments to 4.1 million eligible taxpayers last year.

By Tami Luhby, CNN

(CNN) -- The Internal Revenue Service failed to send $3.7 billion in monthly child tax credit payments to 4.1 million eligible taxpayers last year, according to an audit released Tuesday by the Treasury Inspector General for Tax Administration.

At the same time, the IRS sent more than $1.1 billion to 1.5 million taxpayers who should not have received the monthly installments, the audit found.

Even before it sent any payments last year, the IRS repeatedly said that launching a new program to deliver the monthly payments to tens of millions of families would be a challenge.

The payments stemmed from a temporary enhancement to the child tax credit that Congress enacted as part of the $1.9 trillion American Rescue Plan Act that passed in March 2021. The credit was beefed up to $3,600 for each child up to age 6 and $3,000 for each one ages 6 through 17 for lower- and middle-income families for one year. Also, more low-income parents became eligible for the full amount because lawmakers made it fully refundable.

Plus, for the first time, half the credit was paid in monthly installments from July through December, while parents could claim the other half when they filed their 2021 taxes this year.

The IRS had only four months to set up the system to send payments to parents. As of December, the agency had issued nearly 217 million payments totaling $93.5 billion.

The inspector general's review covered nearly 179 million payments made between July and November 2021, totaling more than $76.7 billion. It also found some errors associated with incorrect bank account information.

Setting up the monthly payment system in such a short period of time was a "significant undertaking," the inspector general's office said. The vast majority of payments were made correctly.

Incorrect payments were typically corrected when taxpayers filed their 2021 returns this year. The IRS sent families a reconciliation letter, as required by legislation, that identified how much they received in monthly installments, which they needed to use when preparing their returns.

The inspector general's office plans to continue monitoring the reversals of the incorrect payments.

The inspector general's office made several recommendations to the IRS, including the need to take action to prevent taxpayers from receiving additional improper payments, inform taxpayers that their installments may have been sent to other accounts that they may own and to validate incoming files from third-party sources prior to their use.

The IRS agreed with the recommendations, according to the audit.

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