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Ed Slott: Child Tax Credit Is 'a Mess!'

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What You Need to Know

  • Some filers may end up paying a tax professional more than the credit is worth, Slott says.
  • The new IRS guidance will help advisors report correctly for their clients, he adds.
  • House Republicans complain that the credit will leave many families struggling to pay a surprise tax bill.

The Internal Revenue Service issued Tuesday a revised Fact Sheet and frequently asked questions on the 2021 child tax credit and advance child tax credit to help eligible families properly claim the credit when they prepare and file their 2021 tax return.

Tax expert Ed Slott of Ed Slott & Co. told ThinkAdvisor on Tuesday in an email that the child tax credit situation this year is “a mess! Some people may end up paying a tax pro more than the credit!”

Others, Slott said, “may still pay a tax pro only to end up returning money they already received. Advance payments can always be tricky when it’s time to reconcile.”

The IRS guidance issued Tuesday is “a good reference guide for tax advisors though,” Slott said. “This will help lots of them figure this out and do the correct reporting for their clients.”

He added: “It’s unreal how many related IRS tax forms can be involved here, including IRS Letter 6419 which includes info on funds received for advance child tax credit payments and qualifying children.”

Forms include, according to Slott: “8812, 3911, 2555, 8379, 8332, 14039, 1040-PR, 1040-SS.”

One of the FAQs asks if a filer will need to repay the IRS any of the advance child tax credit payments that they received in 2021.

The IRS’ answer: “Maybe. The total amount of advance Child Tax Credit payments that you received during 2021 was based on the IRS’s estimate of the amount of Child Tax Credit that you may properly claim on your 2021 tax return. Important: If the total amount of your advance Child Tax Credit payments was greater than the Child Tax Credit amount that you may properly claim on your 2021 tax return, you may have to repay the excess amount on your 2021 tax return during the 2022 tax filing season — unless you qualify for repayment protection.”

The IRS sent Letter 6419, Advance Child Tax Credit Reconciliation, in late January to help filers reconcile and receive the full amount of their 2021 child tax credit.

The letter includes the total amount of the 2021 advance child tax credit payments issued and the number of qualifying children used to calculate their advance payments.

Taxpayers “need this important information to accurately claim the other half of the 2021 Child Tax Credit when filing their 2021 tax return and prevent delays in processing,” the IRS said.

The IRS reminds people to check this information carefully.

Republicans on the House Ways and Means Committee complained Monday that millions of taxpayers will be hit.

“Any family making over $60,000 a year could struggle to pay back a surprise tax bill, thanks to Democrats’ child tax credit,” the lawmakers said.

They quoted a recent commentary from Leslie Lenkowsky, a public affairs professor, in The Wall Street Journal. Roughly 36 million families received advance payments last year, he wrote, adding that “those who have already spent what they received last year may be hard-pressed to pay it back.”