Important Information Regarding 2021 Personal Income Tax Returns
IRS Issuing Information Letters to Advance Child Tax Credit Recipients and Recipients of the Third Round of Economic Impact Payments
On December 22, 2021, the IRS announced that it will issue information letters to Advance Child Tax Credit recipients starting in December and to recipients of the third round of the Economic Impact Payments at the end of January. Using this information when preparing your personal tax return for 2021 can reduce errors and delays in processing. The IRS urges people receiving these letters to make sure they hold onto them to assist them in preparing their 2021 federal tax returns in 2022.
If BMSS prepares your individual income tax returns, please be on the lookout for any such letters from the IRS, and, if received, place those letters with your 2021 tax information to be provided to us.
Child Tax Credits (CTC)
As part of the American Rescue Plan Act of 2021, Congress approved an increase of the child tax credit to $3,000 per child (or $3,600 for a child under the age of 6) from the previous $2,000 per child, subject to income limitations. Additionally, in response to the ongoing struggles taxpayers have faced during the Coronavirus pandemic, taxpayers were eligible to receive one-half of the credit in advance in monthly installments (maximum of $300), beginning in July 2021. Families who received advance payments will need to file a 2021 tax return and compare the advance Child Tax Credit payments they received in 2021 with the amount of the Child Tax Credit they can properly claim on their 2021 tax return.
To help taxpayers that received advance payments reconcile and receive all of the Child Tax Credits to which they are entitled, the IRS will send Letter 6419, 2021 Advance Child Tax Credit, starting late December 2021 and continuing into January. The letter will provide the number and total amount of advanced Child Tax Credit payments the taxpayer received in 2021, and the number of qualifying children used to calculate the advance payments. This letter will be vital in computing the credit on your 2021 tax return. Eligible families who did not receive any advance Child Tax Credit payments can claim the full amount of the Child Tax Credit on their 2021 federal tax return, filed in 2022.
Please keep in mind that since these payments are an advance of a 2021 tax credit, the following could cause an adjustment to your credit:
- Increase or Decrease in Modified Adjusted Gross Income
- Birth of a new child in 2021
For more details on the provisions of the Advance Child Tax Credit within the American Rescue Plan Act of 2021, please refer to the June 16, 2021 edition of our Beyond the Bottom Line newsletter here. Taxpayers who received the advance CTC payments can also check the amount of their payments by using the CTC Update Portal available on IRS.gov.
Third Economic Impact Payment (EIP)
The IRS will begin issuing Letter 6475, Your Third Economic Impact Payment, to EIP recipients in late January. This letter will help Economic Impact Payment recipients determine if they are entitled to and should claim the Recovery Rebate Credit on their 2021 tax returns that they file in 2022.
Letter 6475 only applies to the third round of Economic Impact Payments that were issued starting in March 2021 through December 2021. The third round of Economic Impact Payments were advance payments of the 2021 Recovery Rebate Credit that would be claimed on a 2021 tax return.
Most eligible taxpayers already received the payments. However, people who are missing stimulus payments should review the information to determine their eligibility and whether they need to claim a Recovery Rebate Credit for tax year 2020 or 2021. Like the advance CTC letter, the Economic Impact Payment letters include important information that can help people quickly and accurately file their tax returns.
If you have any questions regarding the Advance CTC / Letter 6419 and/or the Third EIP / Letter 6475, please contact your BMSS professional at (833) CPA-BMSS.