IRS Reminders for Individual Taxpayers

The IRS has been announcing reminders for individual taxpayers, who have additional factors to consider when they file their 2021 taxes. And that means that you, their accountant, bookkeeper or tax preparer, also need to understand these factors.   

Reconcile Advance Child Tax Credit Payments

Many families received monthly advance payments of their 2021 Child Tax Credit starting in July. Some taxpayers still do not understand these payments; they believe they were standalone payments that were grants or gifts from the government. 

However, taxpayers received advance payments of the Child Tax Credit that the IRS forecast they would see when they actually filed their 2021 taxes. The IRS determined the amount of the advance payments on estimates based on 2020 tax returns (or 2019 returns if 2020 was not available). In addition, taxpayers were able to enter updated information through the Child Tax Credit Update Portal during the year. 

Because the advance payments were made based on their predicted 2021 tax filing situation, the total advance payments received in 2021 will need to be compared to the amount of the Child Tax Credit they can properly claim on their 2021 tax return. 

• For taxpayers who received less through their advance Child Tax Credit than the amount they are eligible for based on their actual tax filing situation, they will claim a credit equal to the remaining amount of the Child Tax Credit.
• For taxpayers who received more through their advance Child Tax Credit than the amount they are eligible for based on their actual tax filing situation, they may need to repay some or all of the excess payments.

Taxpayers will receive Letter 6419 from the IRS in January 2022 showing the total amount of advance Child Tax Credit payments received in 2021. These letters should be kept with tax records. 

See Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return for more information.

Eligible taxpayers who did not receive monthly advance payments in 2021 can still get a lump-sum payment by claiming the Child Tax Credit when they file a 2021 federal income tax return.

Economic Impact Payments and Claiming the Recovery Rebate Credit

There were three rounds of economic impact payments made during 2020 and 2021.

• Round 1 was distributed in 2020
• Round 2 was distributed in 2021. If specific qualifications were met, taxpayers received up to $600 (or $1,200 if married filing jointly) plus $600 for each qualifying child under 17 based on income thresholds.
• Round 3 was also distributed in 2021. If specific qualifications were met, taxpayers received up to $1,400 (or $2,800 if married filing jointly) plus $1,400 for each qualifying dependent based on income thresholds. 

Taxpayers who didn't qualify for the third round or didn't receive the full amount may be eligible for the Recovery Rebate Credit based on their 2021 tax information. 

Taxpayers will receive Letter 6475 in early 2022 showing the total amount of their third-round payments and any Plus-Up payments they received. These letters should be kept with tax records. Taxpayers can also log in to their IRS Account to view their Economic Impact Payment amounts.