Many parents might be looking for money from the child tax credit payment in January, but they won’t see it coming on January 15 or soon after.
What is more likely to appear is a tax letter from the Internal Revenue Service regarding the child tax credit. Don’t launch it.
You may not expect to see a notice from the IRS, but this letter is essential to help you prepare for your 2021 1040 tax return and possibly claim more money owed to you.
Unfortunately for 36 million families, child tax credit advance payments will not cover any bills in January, as some might have expected.
Efforts to extend payments through 2022 collapsed in Congress when President Joe Biden’s Build Back Better Act met stiff resistance last year.
Families across the country expect to lose an average of $444 per month while the program is halted, according to December data. In Michigan, the average payment was $455 in the month of December.
The total payout for December alone for the Child Advance Tax Credit was $16 billion nationally and nearly $464.7 million in Michigan.
Democrats continue to seek ways to extend the expanded child tax credit, but US Senator Joe Manchin, a Democrat from West Virginia, has put in place a series of hurdles blocking the credit’s extension. expanded child tax to 2022. What should you do with the letter from the IRS?
You are going to want to keep the IRS alert, called Letter 6419, with your tax documents. Referring to this letter when preparing your 2021 tax return can help avoid a long wait for any tax refunds owed to you.
Families who received the Child Advance Tax Credit must file a 2021 tax return to collect any additional amounts owed.
What many families may not realize is that last year’s monthly payments were designed to be only half of a family’s estimated total credit.
The letter, according to the IRS, will include the total dollar amount of monthly child tax credit advance payments you received in 2021. The letter will also indicate the number of eligible children used to calculate the advance payments.
If a baby was born in 2021 or the family adopted a child in 2021, the child would not have received any advance payments and these payments would be claimed on the 2021 tax return.
If you received money from July to December of last year for the child tax credit, you will need to compare the payments you received with what you would actually qualify for based on your income and your family situation in 2021.
The IRS notes that the letter contains important information that can make it easier to prepare their tax returns.
In addition, families who received child tax credit advance payments can check the amount of their payments by using the Child Tax Credit Update Portal on IRS.gov.
Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, said the taxpayer can check information on the IRS.gov site for what the IRS says was paid in 2021.
You can compare what you received by looking at your bank statements. Child tax credit payments were made around the 15th of each month last year from July to December.
Possible reasons for the differences, Luscombe said, could involve a situation where advance payments ended up going to a different bank account or a check was lost in the mail.
“If after checking the portal, the taxpayer still believes that letter 6419 is in error, then they could contact the IRS,” Luscombe said.
Why You Can’t Ignore the Child Tax Credit
More money could be on the table – and that’s why filing a tax return for 2021 is essential.
You will need to claim the other half of what may be owed by filing a 1040 return and reconcile the amounts already received with what is owed to you.
Some families whose income increased in 2021 may not be eligible for more money now depending on their income. But others will be eligible for more child tax credit money.
Similar to last year, the IRS said some people will need to file tax returns even if they are not required to because of low income. You may receive two letters from the IRS
Those who received the Child Tax Credit – and a third stimulus check in early 2021 – would receive two different letters in the post.
In late January, the IRS is expected to begin issuing what is called the 6475 letter for those who received the third economic impact payment.
The third stimulus payment was sent to millions of taxpayers starting in March 2021.
But the IRS had ‘higher’ payments for people who received a lower amount in March or April based on their 2019 tax returns, but were entitled to more money after filing a tax return. 2020 income, for example if their income fell during the last recession. year.
The IRS issued stimulus payments to some taxpayers throughout December.
You would turn to letter 6475 to detail the amount of stimulus money you received in 2021 and whether you would be eligible to claim the recovery refund credit when you file the 2021 tax return this year.
The IRS noted that most eligible people had already received the payments. “However, individuals who miss stimulus payments should review the information to determine their eligibility and whether they should apply for a recovery rebate credit for the 2020 or 2021 tax year,” according to an IRS alert.
Child tax credit payments received are based on factors such as income, filing status, number of children and their ages. Therefore, you cannot just assume that you are eligible to receive the same amount of money as your best friend or neighbor.
The expanded credit was temporary, giving parents up to $3,600 for each qualifying child, up from $2,000 previously. Half of this money was to be paid each month from July to December.
As part of the monthly payments, families received up to $300 for each child up to age 5 or up to $250 for each child aged 6 to 17.
The numbers that any family can receive may vary throughout the card. The Center on Budget and Policy Priorities and Wolters Kluwer Tax & Accounting released some examples for the Free Press, based on the expanded credit structure in place for 2021.
Let’s say a family has two children, a three-year-old boy and a 12-year-old girl.
For this example, the maximum child tax credit payable for these two children would be $6,600 for a married couple filing jointly or a single parent earning $80,000 or less. Advance monthly payments would have been $550 per month for six months.
The remaining portion owed would be $3,300 — half of the $6,600 child tax credit available for this example — once a 2021 tax return has been filed.
But credit decreases with higher income. A single parent earning $150,000 would qualify in this example for a total credit of $4,700. When filing a 2021 return in this example with two children, the single parent would owe $2,350.
A married couple in this example would still get a total credit of $6,600 at the $150,000 mark.
Shift the income up to $350,000 and the single parent is entitled to no child tax credit, but the married couple filing a joint return would still be entitled to a total of $4,000 – of which $2,000 when filing a 2021 return.
Reconciling credit of course becomes more complicated when there is a significant difference in income in 2020 and 2021.
Filers won’t pay tax on their advance child tax credits — or on that third stimulus payment — but they must file tax returns to make sure they’ve received what they qualify for.