Remember back when your clients were getting their letters stating how much each of their economic impact payments were going to be (Notice 1444)? Do you remember how most of them threw it away?
If they qualified for the child tax credit this year, they’ll be receiving another letter soon (Letter 6419), stating how much of the credit they received already. Now’s the time to alert them to look for this letter in the mail and to save it with the rest of their tax documents. It’ll save you and your clients hours of work and headaches!
More information on the child tax credit payments
2021 legislation made significant changes to the tax rules surrounding the child tax credit. For the first time, eligible taxpayers automatically received half of the credit in advance of filing their 2021 return through six monthly installments.
Taxpayers who received advance payments will receive Letter 6419 in the mail from the IRS in January 2022 and should bring this letter to their appointment with their tax professional when filing their 2021 return.
The letter will include the total amount of advance payments sent in 2021. You, as your client’s trusted financial resource, may need to refer to this notice to claim the remaining child tax credit amount. This letter will be mailed to the address the IRS has on file as of the letter’s mailing date.
If your client opted out of receiving the advance credit, they will not receive Letter 6419 from the IRS in January 2022 and do not need to bring anything additional to their annual tax prep appointment, with regard to the child tax credit.
When you file your clients’ 2021 returns, you should compare the total amount of the advance payments they received in 2021 with the amount they are entitled. If the amount they are entitled to is more than the total amount received through the advance payments, the remaining amount can be claimed on their 2021 return.
If the amount they are entitled to is less than the total amount in the advance payments received, you will have to determine if your client is required to repay some or all of the excess payment.
The credit for children ages 5 and younger is up to $3,600, with a monthly advance payment of up to $300. The credit for children ages 6 to 17 is up to $3,000, with a monthly advance payment of up to $250. The funds are deposited directly into taxpayers’ bank accounts or mailed via paper check. Taxpayers were able to opt out of the advance payments using the IRS’s online Child Tax Credit Update Portal.
A final payment will be made Dec. 15 for those who did not opt out of the advance payments.
There are additional circumstances that could affect your client’s child tax credit refund, including shared custody agreements and both parents opting out of the advance payments. For more information on this topic, NATP and Drake Software recently hosted a free roundtable discussion that covers everything we know as of now about accounting for these payments on your client’s return.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.