We are not aware of any Illinois law that would prevent your bank from deducting an overdraft fee from a child tax credit payment — provided your account agreement allows for the setoff of overdraft fees.

The IRS has published guidance confirming that advance child tax credit payments are not exempt from garnishment by non-federal creditors and may be subject to garnishment “to the extent permitted by the laws of your state and local government.” Since your bank is not a federal creditor (such as the IRS), we believe you would be able to offset overdraft fees against child tax credit payments to the extent such setoff is allowed under your account agreement.

For resources related to our guidance, please see:

• IRS, 2021 Child Tax Credit and Advance Child Tax Credit Payments — Topic G: Receiving Advance Child Tax Credit Payments, Q. G4 (June 14, 2021) (“Is my advance Child Tax Credit payment subject to garnishment? 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.”)

• Selby v. DuQuoin State Bank, 584 N.E. 2d 1055, 1057 (5th Dist. 1991) (“The common law right of set off provides that a Bank may apply its depositor's account for a debt he owes to the bank. . . . Under common law a bank has the power to apply the deposit to the payment of such depositor's indebtedness only when there are mutual demands and debts between the parties and this right of setoff arises at the time the depositor's indebtedness to the bank has matured.”)