Family situations can be unique and ever-changing. Because of this, you understand the intricacies of the child tax credit (CTC), the additional child tax credit (ACTC) and the other dependent credit (ODC) to accurately assess your clients’ tax situations. This understanding will ensure your clients receive the full benefits they’re entitled to, optimizing their tax returns and minimizing possible financial burdens.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: Does a disabled child, aged 17 or older, qualify for the child tax credit (CTC)?

A: No, they do not qualify for the CTC because they are not under age 17. However, they may qualify for the other dependent credit (ODC).

Q: Would a 20-year-old child of a taxpayer qualify for the ODC if they are not a full-time student?

A: It depends. If the taxpayer claims the child as a dependent under the qualifying relative rules, they may qualify for the ODC.

Q: Is it necessary to list the documents provided by the taxpayer on Line 5 of Form 8867, Paid Preparer’s Due Diligence Checklist?

A: Yes, if the paid preparer relied on any documents provided by the taxpayer to determine eligibility for, or the amount of, the CTC, the additional child tax credit (ACTC), or the ODC, they must list those documents on Form 8867, Line 5.

Q: Whose tax return does Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, go with – the custodial parent, the noncustodial parent or both?

A: Attach Form 8332 to the noncustodial parent’s tax return.

To learn more about calculating child tax credits, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial at natptax.com/explore.

Question: Your clients, Brian and Angela, have three children under age 17. They fell on some hard times and were unable to work at all during 2022. Their only income was $480 in royalties for some karaoke tracks they created. Thus, they have no tax liability for 2022. The couple does plan to file a joint income tax return for 2022, however. Assuming they meet all other requirements, will they still be eligible to claim the child tax credit for 2022?

Answer: No. They are not eligible to claim the child tax credit for 2022. Apart from 2021, the child tax credit is nonrefundable. Its refundable counterpart, the additional child tax credit, can’t be claimed by the couple because it requires earned income of $2,500 to qualify [§24(h)(6)] and the couple only earned $480 in 2022.

NATP and Drake Software have partnered to present Taxes Today, a roundtable discussion covering the most pressing topics for tax preparers. Top industry leaders and tax experts discuss the latest on legislation, current tax issues and post-tax season advice.

The panel includes Larry Gray, CPA, firm owner and NATP government relations liaison; NATP tax research specialist Sheri Fronsee, CPA; John Sapp, CPA, Drake Chief Operating Officer and Randy Adams, EA, NATP instructor and Drake Software user. 

__The discussion includes: __

• Child tax credit and dependent care benefits 
• Cannabis tax issues
• Build Back Better Act 
• Secure Act 2.0 
• Schedules K-2 and K-3 
• IRS delays and responses 
• Cryptocurrency and NFTs
• Form 7203 & S corporation shareholder basis 
• Partnership basis 
• And more! 

These discussions are available for free to all tax preparers with an NATP account.

Access this prerecorded event at natptax.com/taxestoday. 

It’s only the third week of May, but there are a lot of updates coming from the IRS. Here’s a recap of the top stories:

Face-to-face IRS help without an appointment available during special Saturday opening on May 14

May 10, 2022 — Although filing season has come and gone, the IRS recognizes taxpayers still need assistance.

IRS provides guidance for residents of Puerto Rico to claim the Child Tax Credit

May 6, 2022 — The IRS issued guidance for certain individuals in Puerto Rico on how to file and claim the Child Tax Credit payments that they are entitled to receive under the American Rescue Plan Act.

For National Small Business Week, special tax credit can help employers hire workers; key certification requirement applies

May 6, 2022 — With many businesses facing a tight job market, the IRS reminds employers to check out a valuable tax credit available for hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment.

Ahead of hurricane season, IRS offers tips on ways to prepare for natural disasters

May 5, 2022 — The IRS reminded taxpayers that May includes National Hurricane Preparedness Week and is National Wildfire Awareness Month. This is a good time to create or review an emergency preparedness plan, including steps to protect important tax-related information.

Low Income Taxpayer Clinic 2023 grant application period now open – National Taxpayer Advocate calls for applicants looking to serve their communities and uphold taxpayer rights

May 2, 2022 — The IRS announced the opening of the application period for Low Income Taxpayer Clinic (LITC) matching grants for calendar year 2023. Applications will be accepted from May 2 to June 16, 2022.

This filing season, the IRS is finding that taxpayers have been making a number of common errors, including claiming incorrect amounts of the recovery rebate credit and child tax credit.

To avoid making mistakes when claiming these common credits, preparers should take some key steps. First, remind your clients to bring you Letter 6419 for advance child tax credit payments and Letter 6475 for third economic impact payment amounts they received. Clients can also provide the information by accessing their online account for you. Claiming incorrect tax credit amounts on a return can delay a taxpayer’s refund and lead to adjustments to the amount refunded.

If the idea of waiting for clients to provide you with these items is daunting, there are programs available to request IRS transcript data. NATP’s partner, Tax Help Software, is an IRS transcript tool that allows users to request, download and analyze IRS transcript data. NATP members can receive a special rate of $250 for six months.

Taking the following steps can help preparers avoid common mistakes through the duration of tax season:

1. File electronically. Enter information carefully, including any information needed to calculate credits and deductions. Let clients know that if they want to file a paper return, it may take months for the IRS to process their return.

2. Use the correct filing status. Tax planning conversations with your clients can help you determine their most appropriate and beneficial filing status, especially when considering married filing separately or married filing jointly and taking the child tax credit.

3. Answer the virtual currency question. The 2021 Forms 1040 and 1040-SR ask whether at any time during 2021, a person received, sold, exchanged or otherwise disposed of any financial interest in any virtual currency. This field cannot be left blank.

4. Report all taxable income. Carefully check your clients’ records to help avoid errors that lead to processing delays and potentially find overlooked deductions or credits. Taxpayers should have all their income documents on hand before starting their tax return.

5. Include unemployment compensation. Although a special law allowed taxpayers to exclude unemployment compensation from their taxable income for 2020, it was only for that year. Unemployment compensation received in 2021 is generally taxable and should be included on your clients’ returns.

6. Double-check name, birth date and Social Security number entries. A return must correctly list the name, Social Security number (SSN) and date of birth for each person claimed as a dependent on an individual income tax return. Enter each SSN and individual’s name on a tax return exactly as printed on the Social Security card. If a dependent or spouse does not have and is not eligible to get an SSN, list the Individual Tax Identification Number (ITIN) instead of an SSN.

7. Double-check routing and account numbers. Requesting direct deposit of a federal refund into one, two or even three accounts is convenient and allows your client access to their money faster.

8. Mail paper returns to the right address. Paper filers should confirm the correct address for where to file on IRS.gov or on form instructions to avoid processing delays. Note that processing paper tax returns could take much longer than usual. Tax professionals should encourage clients to file electronically if possible (see item one).

9. Ensure your clients sign and date the return. If filing a joint return, both spouses must sign and date the return.

10. Request an extension, if needed. If your clients cannot meet the April 18 deadline, you can, on their behalf, request a six-month filing extension to Oct. 17 and prevent late filing penalties. Keep in mind that, while an extension grants additional time to file, tax payments are still due April 18 for most taxpayers.