*Advance Payments of Child Tax Credit to Begin July 15*
The IRS has announced that the first monthly payment of the expanded and newly- advanceable Child Tax Credit from the American Rescue Plan will be made on July 15, and continue to be paid the 15th of each month after, unless the 15th falls on a weekend or holiday.
Payment Dates: 7/15/21 - 8/13/21 - 9/15/21 - 10/15/21 - 11/15/21 - 12/15/21
Advance Payment of the Child Tax Credit in 2021
The American Rescue Plan Act of 2021 expands the Child Tax Credit FOR TAX YEAR 2021 ONLY. Under prior law, the amount of the Child Tax Credit was up to $2,000 per qualifying child under the age of 17 at the end of the year.
The new law expands the credit as follows:
· The credit amounts are increased to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021, and $3,600 per qualifying child under age 6 at the end of 2021.
· The credit for qualifying children is fully refundable
· The credit will include children who turn age 17 in 2021
· Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return
The increased credit amounts are reduced (phased out) for incomes:
· over $150,000 for married filing joint returns and qualifying widows or widowers
· $112,500 for head of household returns
· $75,000 for all other taxpayers.
Advance payments of the 2021 Child Tax Credit will be made regularly starting July 15, 2021 through December of 2021. The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers’ 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).
Eligible taxpayers who DO NOT want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. This will be done through an online portal which allows taxpayers to elect out. This portal will also be used to provide updated information which would create a modification of the annual advance amount, such as a change in the number of qualifying children, a change in marital status, a change in income, etc. The IRS portal is live NOW! On a Married Filing Joint Return BOTH SPOUSES MUST ELECT OUT!
** NOTE** Unlike the stimulus checks, if the advance payments EXCEED the allowable Child Tax Credit when filing the 2021 return, (ex: not claiming the child in 2021, child is now too old now to qualify) the EXCESS WILL INCREASE the TAX LIABILITY on the return.
**You can download our tracking chart found in our Tax Organizers Section
Delayed tax refunds
If you’re one of the millions of Americans waiting patiently for your 2020 federal tax refund, I sympathize with you. This tax filing season has been one like never before and I am hearing from many of you wondering why you haven’t received your payment yet. There are several reasons for the delays, but I can assure you that your return was prepared with the utmost care and expertise, and it is likely part of the sizable IRS backlog of returns.
As of June 5, the IRS reported there are more than 18 million 2020 returns in its pipeline to be processed, and a few million others yet to be finalized from 2019. This past year has been extraordinary, the least of which being the COVID public health crisis and widespread unemployment. In addition, a series of stimulus payments from the federal government to help people navigate COVID financial woes was also managed by the IRS, and to ensure all eligible citizens received stimulus money, the IRS told Americans that everyone should file a tax return. Between more returns, unemployment amendments, issuing stimulus money and processing regular returns, the IRS has had its work cut out for it. Like many businesses during the pandemic, the IRS also had obstacles to overcome like switching its workforce from onsite to virtual and operating with a reduced staff.
If you have not received your refund 21 days after filing, it is likely that it is under further review. This happens more frequently when a return includes a recovery rebate credit, suspicion of identity theft or fraud, a claim for an earned income credit or other criteria that will ping a return for a manual review.
If you receive any correspondence from the IRS regarding your return, please contact me with a copy of the letter you received, and I can guide you through that. Unfortunately, due to the delays in processing, some notices are being sent by the IRS despite timely follow-up by you, or myself on your behalf. At this point, I am as powerless as you to speed up the IRS process, so patience is our best option right now.
I will keep you updated with all important news from the IRS that may apply to your situation. Thank you for your trust in me as your tax return professional and I look forward to serving you in the future.
Certain retroactive tax law changes occurred after the 2021 tax season began. If you filed your 2020 tax return before the American Rescue Plan (ARP) was enacted on March 11, 2021, some changes will be adjusted automatically by the IRS while others require an amended tax return. The IRS is making the following corrections automatically and issuing the resulting refunds, so an amended return should not be filed.
• Excluding $10,200 of 2020 unemployment compensation from income if your modified adjusted gross income (MAGI) is less than $150,000
• Refunding the excess advance premium tax credit repaid with your 2020 return
• Adjusting the 2020 recovery rebate credit (RRC) if an amount was entered on your 2020 return but it’s incorrect Alternatively, you should file an amended return if you:
• Received tax forms reporting additional income after filing your 2020 return
• Failed to claim the unemployment compensation exclusion and become eligible for certain income-based credits not claimed on the original return
• Failed to deduct business expenses because you received Paycheck Protection Program (PPP) loans that were forgiven
• Are eligible for the 2020 RRC but didn’t enter any amount on your 2020 return
The IRS sends notices and letters for various reasons. First and foremost, don’t panic if you receive one. Read it carefully. Sometimes it’s just valuable information to keep with your tax records. Other times, the notice might say the IRS needs more information or changed something on your tax return, especially if you filed your tax return before March 11, 2021 (see prior article). If you agree with the change, there’s no need to contact the IRS, but you must follow the instructions in the notice if you have a balance due. On the other hand, if you disagree with the change, you must respond as directed in the notice. Contact me if you receive a notice, and we can work together on how to respond.
Repayment of distributions related to coronavirus
If you received a coronavirus-related distribution in 2020 that is eligible for tax-free rollover treatment or made on account of hardship, you may choose to repay any portion of it within three years of receiving the distribution. Repayments are treated as trustee-to-trustee transfers, meaning they aren’t included in income and aren’t subject to any contribution or rollover limits. If you make a repayment before the due date (including extensions) of your 2020 return, the repayment reduces the amount included in income on your 2020 return. Alternatively, if you make a repayment after filing your 2020 return and the income was spread over three years, the repayment generally reduces the amount included in income on your 2021 return. However, you may file an amended return for 2020 to reduce your income by the repayment if you:
• Elected to include the entire distribution in income in 2020, or
• Spread the income over three years, the repayment exceeds the amount included in income on the 2021 return and you choose to carry the excess back to 2020 instead of forward to 2022 Please contact my office if you have any questions or concerns regarding these issues, need to file an amended return or still need to file your 2020 return.