Advance Child Tax Credit Update and Bipartisan Infrastructure
In the last Beyond the Bottom Line newsletter, BMSS briefly discussed the Advance Child Tax Credit under the American Rescue Plan enacted in March 2021. The IRS will pay half of the credit in the form of advance monthly payments beginning July 15. Taxpayers will then claim the other half when they file their 2021 income tax return. Taxpayers generally will not need to do anything to receive any advance payments as the IRS will use prior year taxpayer income information on file to start issuing the payments.
The monthly advance of the child tax credit is a significant change. The credit in its previous form was normally determined at the filing of your income tax return and did not provide for any advance payments. The receipt of the advance child tax credit in 2021 will affect your refund or amount due when you file your return.
As mentioned, the advance child tax credit will normally be determined by the IRS based on 2019 or 2020 income on filed returns. Final eligibility and actual credit amount determinations will be based on the income reflected on your 2021 return when filed. Because the credit may phase out partially or completely based on income levels, a taxpayer receiving an advance credit based on 2019 or 2020 income may not qualify for the maximum credit, or any credit, based on 2021 income. Such taxpayers will be required to repay the advance credit though a reduction of their overpayment, or an increase in their balance due, on their returns filed. Therefore, some taxpayers may wish to opt out of the advance credit.
Following our last update, the IRS announced two online tools to help families manage Child Tax Credit payments. The new Child Tax Credit Eligibility Assistant allows families to answer a series of questions to quickly determine whether they qualify for the advance credit. The Child Tax Credit Update Portal allows families to verify their eligibility for the payments and–if they choose to–unenroll, or opt out from receiving the monthly payments so they can receive a lump sum when they file their tax return next year.
BMSS clients who wish to avoid repayment should consider opting out of the advance credit if their income increased in 2021 or if they expect it to increase later in 2021. When 2021 tax returns are filed, taxpayers who opt out of advance payments but nevertheless qualify for the credit will receive a benefit in the form of an adjustment to their balance due or overpaid.
Bipartisan Infrastructure Plan
On June 24, 2021, the White House announced that it had reached a deal with a bipartisan group of moderate Senators on an infrastructure deal. The announced deal includes $973 billion in spending over five years, with $579 billion in new spending.
The degree of far-reaching bipartisan support for the deal is unclear, but assuming all Democrats in the Senate support the plan, the plan will need five GOP votes in addition to the five members of the bipartisan group that struck the deal to overcome a filibuster. A companion infrastructure plan, which could include nontraditional infrastructure plans promoted by some Democratic members of Congress, is also expected to begin taking shape. Its passage would presumably depend on it being part of a reconciliation package requiring a simple majority vote.
Currently, the bipartisan plan does not include an increase in the corporate tax rates favored by many Democrats. The bipartisan plan also does not include an increase in the gas tax, opposed by the President. Rather, funding is planned to come largely from increased, and improved, IRS enforcement of the existing tax laws, as well as a redirection of unused emergency federal funding. The revenue or funding provisions of the companion infrastructure plan are not known at this time, however, BMSS will continue to provide updates as the infrastructure plans develop.
If you have any questions regarding the Advance Child Tax Credit or the Bipartisan Infrastructure Plan, please reach out to your BMSS professional. We are here to help you navigate the many tax changes coming down from Congress in order to provide peace of mind.