Vast numbers of families in the United States have already received monthly advance Child Tax Credit payments, which will continue through December. You may believe you’re all ready now that you know how much money you’ll get monthly.
But how will the changes to the Child Tax Credit affect your tax return in 2021? Should you make any revisions to your Form W-4 now to account for these changes to avoid a tax surprise later?
Were you one of the families who were receiving or eligible for the Child Tax Credit? If so, then you may be stressing out about what exactly you’ll have to show when you’re filing your 2021 tax returns in the 2022 tax filing season.
The Internal Revenue Service (IRS) has made this process simpler for you. Read on to find out more about IRS Letter 6419.
What Is the IRS Letter 6419-2021?
For 2021, the American Rescue Plan increased the amount of Child Tax Credit (CTC) that can be claimed.
Anywhere around July 15, August 13, September 15, October 15, November 15, and December 15, 2021, a part of the child tax credit will be sent as an advanced monthly payment through direct deposit (where applicable) or check.
The IRS will release Letter 6419 in January 2022 to report the total disbursement for use on your 2021 return. The amount provided is for the 2020 return (or 2019 if the 2020 return has not yet been submitted), though it has no bearing on the 2020 return.
For each kid under the age of six, advanced payments of up to $300 per month are available, and for each child aged six to seventeen, advanced payments of up to $250 per month are available. The IRS does have more details on the latest Advance Child Tax Credit Payments.
How Do You Check Your Eligibility?
There are two easy ways to check whether you are eligible for the advance payments – the Child Tax Credit Eligibility Assistant and the Child Tax Credit Update Portal. Furthermore, the IRS issued Advance Child Tax Credit Outreach Letter 6416 (or 6416-A) in June 2021, advising taxpayers of their potential eligibility.
The new Child Tax Credit Eligibility Assistant supports people to quickly assess if they are eligible for the advance credit by answering a series of questions.
Families can use the Child Tax Credit Update Portal to confirm their eligibility for payments and, if they wish, unenroll or opt-out of receiving monthly payments to get a lump sum when they file their tax return the following year.
Any qualified household with internet connectivity and a mobile phone or computer can use this secure, password-protected tool.
People will be able to examine their payment history, change their bank account details or mailing addresses, and use other functionalities in future editions of the tool, which will be released in the summer and fall. A Spanish translation is also in the works.
How Should These Credits Be Reconciled In 2021 Tax Returns?
You’ll need to examine two factors when you file your 2021 tax return during the 2022 tax filing season:
The difference between the total amount of advance Child Tax Credit payments you got in 2021 and the level of Child Tax Credit you can claim on your 2021 tax return.
You can collect the remainder of your Child Tax Credit on your 2021 tax return if the value of your Child Tax Credit outweighs the total amount of your advance Child Tax Credit payments.
If the total amount of advance Child Tax Credit payments you get exceeds the amount of Child Tax Credit you are eligible to claim in the 2021 tax year, you may be required to reimburse the IRS for all or most of the surplus payments.
The IRS will issue you Letter 6419 in January 2022, detailing the entire amount of advance Child Tax Credit payments you received in 2021.
Please retain this letter with your tax documents as proof of your advance Child Tax Credit payments. During the 2022 tax filing season, you might have to consult this letter when filing your 2021 tax return.
It is to be noted that you can be exempt from repaying any or all of the extra amount if you meet the requirements for the repayment protection outlined in Topic H.
If you are not eligible for repayment protection, you must declare the entire excess amount as additional income tax on your 2021 tax return. This additional income tax will lower your tax refund or raise your total tax liability in 2021.
However, taxpayers should not wait until 2022 to see if they will be required to refund the child tax credit. It is recommended that people assess their income and tax status for 2021 now to see if they should opt out.
How Do You Claim the Advance Payments?
Filing a 2020 Tax Return or enrolling through the IRS Child Tax Credit Update Portal were the two ways to claim these advance payments. It is essential to note that the advance payment enrollment period ended on November 15, 2021.
You don’t need to do anything if you’ve already filed a 2020 tax return; if you don’t regularly file, you’ll want to produce a shortened version of a 2020 tax return. To claim the remaining credit on your 2021 Return, you’ll have to file in 2022. To report on your 2021 return, you should get IRS Letter 6419 in early 2022.
If you are obligated to file a tax return and have not yet done so, you should do so now. Advance payments for the 2021 credit are no longer accepted; instead, claim the credit on your 2021 return.
You do not need to do anything to start receiving these payments if you have already filed a 2020 return. In June or July 2021, you may have gotten a CTC letter. The IRS issued these depending on the data from your 2020 return, but they are estimates for your 2021 return.
As a result, if your status changes in 2021, you’ll need to update your information using the IRS Child Tax Credit Update Portal. You can also make changes in 2022 when you complete and e-file your 2021 tax return.
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