WASHINGTON – The Internal Revenue Service announced today it will issue another round of refunds this week to nearly 4 million taxpayers who overpaid their taxes on unemployment compensation received last year.
The American Rescue Plan Act of 2021, which became law in March, excluded up to $10,200 in 2020 unemployment compensation from taxable income calculations. The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.
Refunds by direct deposit will begin July 14 and refunds by paper check will begin July 16. The IRS previously issued refunds related to unemployment compensation exclusion in May and June, and it will continue to issue refunds throughout the summer.
To ease the burden on taxpayers, the IRS has been reviewing the Forms 1040 and 1040SR that were filed prior to the law’s enactment to identify those people who are due an adjustment. For taxpayers who overpaid, the IRS will either refund the overpayment, apply it to other outstanding taxes or other federal or state debts owed.
For this round, the IRS identified approximately 4.6 million taxpayers who may be due an adjustment. Of that number, approximately 4 million taxpayers are expected to receive a refund. The refund average is $1,265, which means some will receive more and some will receive less.
Most taxpayers need not take any action and there is no need to call the IRS. However, if, as a result of the excluded unemployment compensation, taxpayers are now eligible for deductions or credits not claimed on the original return, they should file a Form 1040-X, Amended U.S. Individual Income Tax Return.
Taxpayers should file an amended return if they:
did not submit a Schedule 8812 with the original return to claim the Additional Child Tax Credit and are now eligible for the credit after the unemployment compensation exclusion;
did not submit a Schedule EIC with the original return to claim the Earned Income Tax Credit (with qualifying dependents) and are now eligible for the credit after the unemployment compensation exclusion;
are now eligible for any other credits and/or deductions not mentioned below. Make sure to include any required forms or schedules.
Taxpayers do not need to file an amended return if they:
already filed a tax return and did not claim the unemployment exclusion; the IRS will determine the correct taxable amount of unemployment compensation and tax;
have an adjustment, because of the exclusion, that will result in an increase in any non-refundable or refundable credits reported on the original return;
did not claim the following credits on their tax return but are now eligible when the unemployment exclusion is applied: Recovery Rebate Credit, Earned Income Credit with no qualifying dependents or the Advance Premium Tax Credit. The IRS will calculate the credit and include it in any overpayment;
filed a married filing joint return, live in a community property state, and entered a smaller exclusion amount than entitled on Schedule 1, line 8.
Taxpayers will generally receive letters from the IRS within 30 days of the adjustment, informing them of what kind of adjustment was made (such as refund, payment of IRS debt payment or payment offset for other authorized debts) and the amount of the adjustment.
WASHINGTON — The Internal Revenue Service today launched two new online tools designed to help families manage and monitor the advance monthly payments of Child Tax Credits under the American Rescue Plan. These two new tools are in addition to the Non-filer Sign-up Tool, announced last week, which helps families not normally required to file an income tax return to quickly register for the Child Tax Credit.
The new Child Tax Credit Eligibility Assistant allows families to answer a series of questions to quickly determine whether they qualify for the advance credit.
The Child Tax Credit Update Portal allows families to verify their eligibility for the payments and if they choose to, unenroll, or opt out from receiving the monthly payments so they can receive a lump sum when they file their tax return next year. This secure, password-protected tool is available to any eligible family with internet access and a smart phone or computer. Future versions of the tool planned in the summer and fall will allow people to view their payment history, adjust bank account information or mailing addresses and other features. A Spanish version is also planned.
Both the Child Tax Credit Eligibility Assistant and Child Tax Credit Update Portal are available now on IRS.gov.
The American Rescue plan increased the maximum Child Tax Credit amount in 2021 to $3,600 per child for children under the age of 6 and to $3,000 per child for children ages 6 through 17. The advance Child Tax Credit payments, which will generally be made on the 15th of each month, create financial certainty for families to plan their budgets. Eligible families will receive a payment of up to $300 per month for each child under age 6, and up to $250 per month for each child ages 6 through 17. The first monthly payment of the expanded and newly-advanceable Child Tax Credit will be made on July 15. Most families will begin receiving monthly payments automatically next month without any further action required.
“IRS employees continue to work hard to help people receive this important credit,” IRS Commissioner Chuck Rettig said. “The Update Portal is a key piece among the three new tools now available on IRS.gov to help families understand, register for and monitor these payments. We will be working across the nation with partner groups to share information and help eligible people receive the advance payments.”
More features coming to the Update Portal soon
Coming soon, families will be able to use the Child Tax Credit Update Portal to check the status of their payments. In late June, people will be able to update their bank account information for payments starting in August. In early August, a feature is planned that will allow people to update their mailing address. Then, in future updates planned for this summer and fall, they will be able to use this tool for things like updating family status and changes in income.
For more information see the FAQs, which will continue to be updated.
Update Portal allows people to unenroll
Instead of receiving these advance payments, some families may prefer to wait until the end of the year and receive the entire credit as a refund when they file their 2021 return. In this first release of the tool, the Child Tax Credit Update Portal now enables these families to quickly and easily unenroll from receiving monthly payments.
The unenroll feature can also be helpful to any family that no longer qualifies for the Child Tax Credit or believes they will not qualify when they file their 2021 return. This could happen if, for example:
Their income in 2021 is too high to qualify them for the credit.
Someone else (an ex-spouse or another family member, for example) qualifies to claim their child or children as dependents in 2021.
Their main home was outside of the United States for more than half of 2021.
Accessing the Update Portal
To access the Child Tax Credit Update Portal, a person must first verify their identity. If a person has an existing IRS username or an ID.me account with a verified identity, they can use those accounts to easily sign in. People without an existing account will be asked to verify their identity with a form of photo identification using ID.me, a trusted third party for the IRS. Identity verification is an important safeguard and will protect your account from identity theft.
Anyone who lacks internet access or otherwise cannot use the online tool may unenroll by contacting the IRS at the phone number included in your outreach letter.
Who is getting a monthly payment
In general, monthly payments will go to eligible families who:
Filed either a 2019 or 2020 federal income tax return.
Used the Non-Filers tool on IRS.gov in 2020 to register for an Economic Impact Payment.
Registered for the advance Child Tax Credit this year using the new Non-Filer Sign-Up Tool on IRS.gov.
An eligible family who took any of these steps does not need to do anything else to get their payments.
Normally, the IRS will calculate the advance payment based on the 2020 income tax return. If that return is not available, either because it has not yet been filed or it has not yet been processed, the IRS is instead determining the payment using the 2019 tax return.
Eligible families will receive advance payments, either by direct deposit or check. Each payment will be up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17. The IRS will issue advance Child Tax Credit payments on these dates: July 15, Aug. 13, Sept. 15, Oct. 15, Nov. 15 and Dec. 15.
The IRS urges any family who hasn’t yet filed their 2020 return – or 2019 return – to do so as soon as possible so they can receive any advance payment they’re eligible for. At the same time, the agency cautions that tax returns must be processed by June 28 to be reflected in the first batch of monthly payments scheduled for July 15, so eligible families filing now will likely receive payments in the following months. Even if monthly payments begin after July, the IRS will adjust the monthly amounts upward to ensure that people still receive half of their total eligible Child Tax Credit benefit by the end of the year.
Filing soon will also ensure that the IRS has their most current bank account information, as well as key details about qualifying family members. This includes people who don’t normally file a tax return, such as families experiencing homelessness and people in underserved groups.
For most people, the fastest and easiest way to file a return is by using IRS Free File, available only on IRS.gov. Besides qualifying them for these advance payments, using Free File will also enable them to claim other family-oriented tax benefits, if eligible, such as the Earned Income Tax Credit and the Recovery Rebate Credit/Economic Impact Payments.
New tool helps non-filers register
For families who don’t normally file an income tax return, another easy option is to register for these advance payments using the new Non-filer Sign-up Tool, introduced recently, and available only on IRS.gov. Among other things, the tool asks users to supply current bank information, along with key details about themselves and their qualifying children. The tool then automatically fills in a very basic 2020 federal income tax return that is electronically sent to the IRS. The new tool was developed in partnership with Intuit and the Free File Alliance.
Child Tax Credit Eligibility Assistant unveiled
Before filing a return or using the Non-filer Sign-up Tool, families unsure of whether they qualify for either the credit or the advance payments may want to check out another new tool—the Child Tax Credit Eligibility Assistant. By answering a series of questions, the tool helps people determine if they qualify for the credit and the payments.
The IRS emphasized that because the Child Tax Credit Eligibility Assistant requests no personalized information, it is not a registration tool, but merely an eligibility tool. Nevertheless, it can still help an eligible family determine whether they should take the next step and either file an income tax return or register using the Non-filer Sign-up Tool.
Personal help available
IRS and its partners are helping families register for the payments using the Non-filer Sign-up Tool. During late June and early July, free events will take place in Atlanta, Brooklyn, Detroit, Houston, Las Vegas, Los Angeles, Miami, Milwaukee, Philadelphia, Phoenix, St. Louis and Washington, D.C. More details will be available soon on IRS.gov.
Child Tax Credit 2021
The IRS has created a special Advance Child Tax Credit 2021 page, designed to provide the most up-to-date information about the credit and the advance payments. It’s at IRS.gov/childtaxcredit2021.
Among other things, it provides direct links to the Non-Filer Sign Up Tool, the Child Tax Credit Update Portal, the Child Tax Credit Eligibility Assistant, a set of frequently asked questions and other useful resources.
Child Tax Credit changes
The American Rescue Plan raised the maximum Child Tax Credit in 2021 to $3,600 for children under the age of 6 and to $3,000 per child for children ages 6 through 17. Before 2021, the credit was worth up to $2,000 per eligible child.
The new maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of:
$75,000 or less for singles,
$112,500 or less for heads of household and
$150,000 or less for married couples filing a joint return and qualified widows and widowers.
For most people, modified AGI is the amount shown on Line 11 of their 2020 Form 1040 or 1040-SR. Above these income thresholds, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per child — is reduced by $50 for every $1,000 in modified AGI. In addition, the credit is fully refundable for 2021. This means that eligible families can get it, even if they owe no federal income tax. Before this year, the refundable portion was limited to $1,400 per child.
Help spread the word
The IRS urges community groups, non-profits, associations, education organizations and anyone else with connections to people with children to share this critical information about the Child Tax Credit as well as other important benefits. Among other things, the IRS is already working closely with its community partners to ensure wide access to the Non-filer Sign-up Tool and the Child Tax Credit Update Portal. The agency is also providing additional materials and information that can be easily shared by social media, email and other methods.
This is the first of two tax tips providing an overview of how the American Rescue Plan may affect some individual’s 2021 taxes.
Child and dependent care credit increased for 2021 only The new law increases the amount of the credit and the percentage of employment-related expenses for qualifying care considered in calculating the credit, modifies the phase-out of the credit for higher earners, and makes it refundable for eligible taxpayers.
For 2021, eligible taxpayers can claim qualifying employment-related expenses up to: • $8,000 for one qualifying individual, up from $3,000 in prior years, or • $16,000 for two or more qualifying individuals, up from $6,000.
The maximum credit in 2021 increased to 50% of the taxpayer’s employment-related expenses, which equals $4,000 for one qualifying individual, or $8,000 for two or more qualifying individuals. When figuring the credit, a taxpayer must subtract employer-provided dependent care benefits, such as those provided through a flexible spending account, from total employment-related expenses.
A qualifying individual is a dependent under the age of 13, or a dependent of any age or spouse who is incapable of self-care and who lives with the taxpayer for more than half of the year.
As before, the more a taxpayer earns, the lower the percentage of employment-related expenses that are considered in determining the credit. However, under the new law, more individuals will qualify for the new maximum 50% of employment-related expenses credit percentage rate. That’s because the adjusted gross income level at which the credit percentage starts to phase out is raised to $125,000. Above $125,000, the 50% credit percentage goes down as income rises. It is entirely unavailable for any taxpayer with adjusted gross income over $438,000.
The credit is fully refundable for the first time in 2021. This means an eligible taxpayer can receive it, even if they owe no federal income tax. To be eligible for the refundable portion of the credit, a taxpayer, or the taxpayer’s spouse if filing a joint return, must reside in the United States for at least half of the year.
Workers can set aside more in a dependent care FSA For 2021, the maximum amount of tax-free employer-provided dependent care benefits increased to $10,500. This means an employee can set aside $10,500 in a dependent care flexible spending account, instead of the normal $5,000.
Workers can only do this if their employer adopts this change. Employees should contact their employer for details.
Childless EITC expanded for 2021 For 2021 only, more workers without qualifying children can qualify for the earned income tax credit, a fully refundable tax benefit that helps many low- and moderate-income workers and working families. That’s because the maximum credit is nearly tripled for these taxpayers and is, for the first time, available to younger workers and now has no age limit cap.
For 2021, EITC is generally available to filers without qualifying children who are at least 19 years old with earned income below $21,430; $27,380 for spouses filing a joint return. The maximum EITC for filers with no qualifying children is $1,502.
Another change for 2021, allows individuals to figure the EITC using their 2019 earned income if it was higher than their 2021 earned income. In some instances, this option will give them a larger credit.
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With the filing deadline around the corner, the IRS reminders members of the military that they may qualify for special tax benefits. For example, they don’t have to pay taxes on some types of income. Special rules may lower the tax they owe or allow them more time to file and pay their federal taxes.
Here are some of these special tax benefits:
Combat pay exclusion: If someone serves in a combat zone, part or all of their pay is tax-free. This also applies to people working in an area outside a combat zone when the Department of Defense certifies that area is in direct support of military operations in a combat zone. There are limits to this exclusion for commissioned officers.
Other nontaxable benefits: Base allowance for housing, base allowance for subsistence and uniform allowances are among several government pay items excluded from gross income, which means they are not taxed.
Moving expenses: Some non-reimbursed moving expenses may be tax deductible. To deduct these expenses, the taxpayer must be a member of the Armed Forces on active duty and their move must be due to a military order or result of a permanent change of station.
Deadline extensions: Some members of the military – such as those who serve overseas – can postpone most tax deadlines. Those who qualify can get automatic extensions of time to file and pay their taxes.
Earned income tax credit:Special rules allow military members who get nontaxable combat pay to choose to include it in their taxable income. One reason they might do this is to increase the amount of their earned income tax credit. People who qualify for this credit could owe less tax or even get a larger refund.
Joint return signatures: Both spouses must normally sign a joint income tax return. However, if military service prevents that from happening, one spouse may be able to sign for the other or get a power of attorney. Service members may want to consult with their installation’s legal office to see if a power of attorney is right for them.
Reserve and National Guard travel: Members of a reserve component of the Armed Forces may be able to deduct their unreimbursed travel expenses on their return. To do so, they must travel more than 100 miles away from home in connection with their performance of services as a member of the reserves.
ROTC allowances: Some amounts paid to ROTC students in advanced training are not taxable. However, active duty ROTC pay is taxable. This includes things like pay for summer advanced camp.
Special filing software.Miltax is free tax resource available for the military community, offered through the Department of Defense. There are no income limits. MilTax includes tax preparation and electronic filing software, personalized support from tax consultants and current information about filing taxes. It’s designed to address the realities of military life – including deployments, combat and training pay, housing and rentals and multi-state filings. Eligible taxpayers can use MilTax to electronically file a federal tax return and up to three state returns for free.
Share this tip on social media — #IRSTaxTip: Filing season reminder: Military members and their families may qualify for special tax benefits. https://go.usa.gov/xHdFH
People now automatically have until May 17, 2021, to make 2020 contributions to their:
Individual retirement arrangements
Health savings accounts
Archer medical savings accounts
Coverdell education savings accounts
The deadline for reporting and paying the 10% additional tax on amounts included in gross income from 2020 distributions from IRAs or workplace-based retirement plans is now May 17, 2021. Lastly, the due date for Form 5498 series returns related to these accounts is now June 30, 2021,
2017 unclaimed refunds The law provides a three-year window to claim a refund. Normally, April 15, 2021, is the deadline to claim a refund from tax year 2017 but, the IRS has extended it to May 17, 2021. To get the unclaimed refund, a taxpayer must properly address and mail the tax return, postmarked by May 17, 2021. If a taxpayer doesn’t file a return within three years, the money becomes property of the U.S. Treasury.
Foreign trusts and estates Foreign trusts and estates with federal income tax filing or payment obligations, who file Form 1040-NR, now have until May 17, 2021.
2021 Annual Filing Season Program application deadline Tax return preparers who’d like to participate in the Annual Filing Season Program for calendar year 2021 now have until May 17, 2021, to file their application with the IRS.
Tax professionals can learn more on the AFSP page on IRS.gov.
No extension for estimated tax payments April 15, 2021 is still the deadline to make first quarter estimated tax payments. Withholding is automatic for most employees, but some taxpayers’ income isn’t subject to income tax withholding. These taxpayers must generally make quarterly estimated tax payments. Income that may require estimated tax payments includes:
Self-employment
Interest
Dividends
Alimony
Rentals
Taxpayers should review IRS Notice 2021-21 for more information about these extensions.
Share this tip on social media — #IRSTaxTip: IRS extends additional tax deadlines to May 17. https://go.usa.gov/xHx9n
ROGER S KIM CPA PLLC -NY,NJ Licensed (Member AICPA, CFA Society.) MBE Certified 