First Monthly CTC Payment 15 July

[Lion EA]

https://www.irs.gov/newsroom/irs-treasury-announce-families-of-88-percent-of-children-in-the-us-to-automatically-receive-monthly-payment-of-refundable-child-tax-credit

[Sara EA]

Get ready for the phone calls!

[Lee B]

Just what the IRS needs, more stuff to do without the resources to do it!

[Abby Normal]

9 hours ago, cbslee said:

Just what the IRS needs, more stuff to do without the resources to do it!

The IRS deserves some kind of award for what they've done this past year and what they're still doing.

[Randall]

Hopefully, they'll be sending 1099-Gs at the end of the year.  Clients aren't going to remember any of this at the end of they year.

 

[Lee B]

I really haven't paid much attention to this issue since I have very few clients with young children.

I assume there will be some impact on 2021 tax returns.

If I receive any questions about it in the next several months, I will be very tempted to just say, "I don't know."

[schirallicpa]

General Announcement:  If you have kids, I ain't doing your return anymore.  

It's bad enough to have to do the 8867 for every return with a kid and a child tax credit or a education credit.   A bigger pain when EIC triggers.  But this is really going to be a nightmare!

 

[Lee B]

Here's more information than you probably wanted to know:

"There have been important changes to the Child Tax Credit that will help many families receive advance payments starting this summer. The American Rescue Plan Act (ARPA) of 2021 expands the Child Tax Credit (CTC) for tax year 2021 only.

The expanded credit means:

The credit amounts will increase for many taxpayers.

The credit for qualifying children is fully refundable, which means that taxpayers can benefit from the credit even if they don't have earned income or don't owe any income taxes.

The credit will include children who turn age 17 in 2021. (Important difference from the old CTC.)

Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return.

For tax year 2021, families claiming the CTC will receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021. They will receive $3,600 per qualifying child under age 6 at the end of 2021. Under the prior law, the amount of the CTC was up to $2,000 per qualifying child under the age of 17 at the end of the year.

The increased amounts are reduced (phased out), for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers. (I wonder whether the reduced amounts are still available with the higher phase outs)

Advance payments of the 2021 Child Tax Credit will be made regularly from July through December to eligible taxpayers who have a main home in the United States for more than half the year. The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers' 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).

The IRS urges people with children to file their 2020 tax returns as soon as possible to make sure they're eligible for the appropriate amount of the CTC as well as any other tax credits they're eligible for, including the Earned Income Tax Credit (EITC). Filing electronically with direct deposit also can speed refunds and future advance CTC payments.

Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so.

Eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children. More details on how to take these steps will be announced soon.

The IRS will provide more information about advance payments soon."

[Gail in Virginia]

I really see this being a nightmare for divorced parents who take turns claiming the dependent.  And for the tax preparers who need to know how much they got during the year. 

[Abby Normal]

19 minutes ago, Gail in Virginia said:

I really see this being a nightmare for divorced parents who take turns claiming the dependent.  And for the tax preparers who need to know how much they got during the year. 

True, but just like with the recovery rebates, the IRS will straighten it out, just like they do with estimated payments, that clients sometimes give us wrong amounts for.

[Lee B]

55 minutes ago, Gail in Virginia said:

I really see this being a nightmare for divorced parents who take turns claiming the dependent.  And for the tax preparers who need to know how much they got during the year. 

Actually I have made it a firm policy not to work with any MFJ clients who separate or divorce. The potential risk of a tax related decision affecting one or the other

spouse disproportionately is too high. Back in March I returned all of the original documents to some long term clients ( more than 20 years ) who had separated

but did not tell me. I didn't realize what had happened until I noticed that some of the original tax documents for one spouse had a new address.

[Gail in Virginia]

But do you actually refuse to take new clients whohave been through a divorce and are sharing custody of their children?  I understand not keeping both clients when they split up, and even not wanting to keep either of them for a few years.  But this is a potential problem forever after for some people now. 

[Lee B]

Actually several years ago I declined to take on young lady, a daughter of some long time clients, who was sharing custody with her ex spouse.

I just don't have the necessary experience and expertise to deal with these issues. It's consumes way more time than I can bill.

In recent years as a one person office, I have decided to stay within my limitations.  In addition I don't do Estate and Trust Returns or any nonprofit work.

[Sara EA]

I could be wrong, but I seem to remember from an update course that unlike the stimulus payments, the advance child tax credit will have to be paid back if 2021 income is not what the IRS calculated the credit on.  This year I had a few clients who could not come up with how much stimulus they got, but when I looked at their 2020 income and realized they were not going to get any more anyway, I just plugged in the standard amounts or entered zeros.  (Say they really got $1k instead of $1200, but their 2020 income was too high to get anything, it made no difference what I put in there because they were definitely not going to get a recovery credit.)  We won't be able to do that with the advance child tax credit in 2021 and will have many clients moaning when we present their tax bill.  Right now we don't know enough about it to warn them.  The IRS may do that, but how many people won't read it because they are thrilled by the thought of getting extra income?

[BulldogTom]

12 hours ago, Sara EA said:

I could be wrong, but I seem to remember from an update course that unlike the stimulus payments, the advance child tax credit will have to be paid back if 2021 income is not what the IRS calculated the credit on.  This year I had a few clients who could not come up with how much stimulus they got, but when I looked at their 2020 income and realized they were not going to get any more anyway, I just plugged in the standard amounts or entered zeros.  (Say they really got $1k instead of $1200, but their 2020 income was too high to get anything, it made no difference what I put in there because they were definitely not going to get a recovery credit.)  We won't be able to do that with the advance child tax credit in 2021 and will have many clients moaning when we present their tax bill.  Right now we don't know enough about it to warn them.  The IRS may do that, but how many people won't read it because they are thrilled by the thought of getting extra income?

Bingo!   This will be the issue.   How many people are just going to treat this like the "free" money they got last year?   Assume a client gets enhanced UI for 6 months, advanced CTC and works for 6 months.  What are they going to say when you tell them they have no refund coming cause they got it during the year?   This is going to be a bloody year for the chains (Block, Liberty, JH).   They live off the quick turnaround, big refund checks and advancing loans off of the refunds.   

But then again, the President and Congress could decide that this is still unprecedented times and forgive the payback on the tax credits and allow UI to go untaxed for another year.    We saw it before and we may see it again.

Tom
Modesto, CA 

[Lee B]

I already have a question from a client who wants to whether they will be eligible to receive the advance payments, beginning July 15th for their 3 year old.

Their 2020 Income without the Unemployment Exclusion exceeded 150 k,but with the exclusion was below 150 k.

Their projected income for 2021 is below 150 k. 

I told them based on the information released so far they will qualify for the enhanced ACTC on their 2021 tax return, 

but it was too soon to know whether they will receive any advance payments beginning in July?

[Lee B]

"Taxpayers who do not wish to receive the advance payments, whether for changes in income, status of dependents, or otherwise, will be able to opt out of automatic advance payments in order to avoid having to make a year-end repayment. The unenrollment process will be completed via a tool on the online IRS portal; however, this feature is not yet available as of their June 7, 2021, announcement and any alternate means to opt-out in the meantime have not been provided. A similar tool to be released later in 2021 will allow taxpayers to update relevant income and dependent information on the IRS portal so that they may receive a more accurate monthly credit payment."

[Sara EA]

Our firm has taken the position that we will not recommend that clients take the money or opt out (except in cases where 2021 income is certain to be above eligibility).  We wrote a generic email to respond to client queries that explains that there is an enhanced CTC and that half of it will be paid in advance for taxpayers within certain income parameters.  Receiving it may lower their 2021 refund, or if their income rises above the limits in the IRS letter, they will have to pay some or all of it back.    If they think their income will rise or they like the idea of a big refund all at once, they might want to opt out.  If they need the money now, they might choose not to opt out.  (We are not calculating their amounts or making the decision for them!)

[TexTaxToo]

The "Update portal" which may be used to opt out of the payments is now available here:

https://www.irs.gov/credits-deductions/child-tax-credit-update-portal

I don't see much reason to opt out, but you can also use it to see what you'll get, and future enhancements will allow:

• changing bank account information
• changing mailing address
• changing family status and income (will this allow opting in?)

[Bart]

I can think of a few reasons to opt out

[Abby Normal]

15 hours ago, Bart said:

I can think of a few reasons to opt out

I have a client who wants to opt out in lieu of making estimated tax payments.

[TexTaxToo]

I wonder if underpayment penalties will be assessed if you don't opt out and need to pay back the advanced payments.  I hope not, but I agree that would be a good reason.

[NECPA in NEBRASKA]

I don't have a lot of returns anymore with dependents, but I am advising almost all of them to opt out. Several of them are divorced and it will be a nightmare when they alternate kids every year. Since many of them gave me incorrect EIP amounts, I can't imagine how they will ever know how much they received on a monthly basis. 

[Abby Normal]

17 hours ago, NECPA in NEBRASKA said:

when they alternate kids every year

For now, at least, this is a one time deal for 2021, but I can see that some would like to make the child credit monthly payments permanent.

[Lion EA]

"The IRS is now the largest social services agency in the US, with respect to transfer of payments." -- Frank Agostino, Esq.