From Thomson-Reuters and the Pinnacle CPA Advisory Group —
Have you received payments from the IRS recently and wondered why Uncle Sam is sending you money? In case you haven’t heard, the IRS began sending eligible taxpayers payments in mid-July. You may have gotten a paper check or received funds by direct deposit. These payments are part of a new initiative to provide you with an advance on your 2021 Child Tax Credit (CTC).
Passed back in March, the American Rescue Plan Act of 2021 (ARPA), made significant changes to the CTC. For one, the available credit increased from a maximum of $2,000 per qualifying child to a maximum of $3,000 for kids ages six to 17, and a maximum of $3,600 for kids under age six as of the end of 2021.
Not everyone will be eligible for the increased credit. Like the CTC of the past, those with higher incomes will see some of the credit reduced, and those really high earners may see the credit go away completely.
In addition to the increased credit amount, the new law makes the credit fully refundable. Not only that, but the IRS is sending 50% of the estimated 2021 credit to taxpayers in six equal monthly installments.
So how does the IRS know what your 2021 credit will be when you haven’t filed your 2021 tax return yet? The answer is, they don’t. They estimated your credit using the information that was included on your 2020 return, or your 2019 return if you haven’t yet filed your 2020 return.
That makes sense, you say. But what if 2021 is vastly different from 2020? Maybe your income is way up or there’s been a change in your filing status or your dependents.
Here’s where the potential catch comes in. The IRS is using your prior year information to estimate how much to send out as advance payments. So, they could send you more in advance payments than the amount of the CTC you’ll be allowed when you file your 2021 return next year.
If this happens, you may have to repay the difference. There are a few things we can do if you think you’ll find yourself in this situation. Find more information about the advance Child Tax Credit payments at IRS.gov, and please contact us to help walk you through the options you have in order to avoid a surprise next spring.
Very truly yours,
The Pinnacle CPA Advisory Group
Contact the Pinnacle CPA Advisory Group
If you need help with the Child Tax Credit, or any personal or business tax issue, contact the Pinnacle CPA Advisory Group for expert advice. Call us at (614) 942-1990, reach us by email sent to firstname.lastname@example.org, or fill out our Contact form at cpaagi.com/contact.