Preface: It is imperative that taxpayers who received the advance Child Tax Credit in 2021 be on the lookout for and keep the IRS Letter 6419.
Important Notice Regarding Advance Child Tax Credit
Credit: Matthew P. Glick
TLDR; Beginning in late December, the IRS started issuing Letter 6419, 2021 advance CTC to notify taxpayers of advance Child Tax Credit payments in 2021. These letters should be treated with the same importance as a W-2 or 1099 for tax filing purposes and retained for your tax filing.
If you are a parent, chances are that you’ve been receiving a deposit into your bank account each month to the tune of $250-$300 for every child listed as a dependent on your tax return. This is due to changes in the child tax credit which stem from the American Rescue Plan Act passed in March of 2021. The changes are valid for 2021 only, but they are substantial.
The first change increased the amount per child, and increased the age of eligible children from 16 to 17. For the 2020 tax year the amount was $2,000. That has now been increased to $3,000 and $3,600 for children under the age of 6. The second change made the credit fully refundable. This simply means that you can claim the credit even if you do not have the income to cover it.
While the previous two changes will most likely have the larger impact on the amount of taxes you owe, the third change that the American Rescue Plan brought about will have a larger impact on the process of filing your taxes. The third change prompted the IRS to start paying a portion of the credit in advance in monthly installments. This is much different from the method we are all used to, where the credit is calculated at the end of the year during tax time. This change has prompted the IRS to begin sending Letter 6419 to taxpayers who received the advance child tax credit.
This means that it is imperative that taxpayers who received the advance Child Tax Credit in 2021 be on the lookout for and keep the Letter 6419 along with the rest of the familiar tax forms and notices that they are used to keeping. Think of it like a W-2 from the IRS. This is their record of how much money they have sent you over the past year.
Keep in mind, however, that the amount of the advance payment was based on historical data provided to the IRS through previous tax returns. As we all know, circumstances change quicker than we tend to file our taxes, meaning that the amount that the IRS has been using to calculate the amounts for the advance payments is subject to change, pending confirmation at tax time.
So, what happens if the IRS used outdated information and issued an overpayment? The answer: it depends. If your income (Modified Adjusted Gross Income) is less than $40,000 for single or $60,000 for joint filers, there will be no repayment requirement. There is a phase-out that ends at $80,000 for single and $120,000 for joint taxpayers. Taxpayers with a MAGI over these amounts will have to repay any overpayment amount. Keep in mind that while we try to give the most up-to-date and concrete information available, individual facts and circumstances can impact these amounts. If you are concerned that you may have received an overpayment and are unsure if you will be required to pay it back, please contact your tax advisor regarding your individual situation.
So, are these changes here to stay? Currently, no. There was a provision in Biden’s Build Back Better act, which would extend these provisions into 2022, but after being passed by the House of Representatives, this plan failed to garner enough support in the Senate to become law. As things currently stand, the child tax credit is set to revert back to the pre-2021 level of $2,000 for children younger than 16, $1,400 of which will be refundable, and none of it will be paid in advance.