Guidance on PPP Loan Forgiveness
TXCPA Asks Congress to Support Bipartisan Letters to Treasury and the IRS for Improved Taxpayer Services

ACTC Filing Season Considerations and Complications

By David P. Donnelly, CPA-Houston

The U.S. Treasury made partial payments of the Advance Child Tax Credit (ACTC) to millions of recipients during 2021. These payments represent one-half of the amounts to which the taxpayers are entitled under the ACTC program—based on their 2020 tax returns. 

The IRS is currently mailing notices, denominated as Letter 6419, to the taxpayers who received the advance portion of this credit. The letter states the amount of the ACTC paid during 2021 and the number of qualifying children. Both these items must be entered on Schedule 8812 of the recipient’s personal income tax return to request the payment of the second half of the credit—or to determine if the recipient qualifies for an additional payment or if a refund of the ACTC is required.  

If the taxpayer filed their 2019 returns with the filing status of Married Filing Jointly, each spouse will receive their own letter, which should state half of the total amount of the ACTC paid during the year. For their 2021 return, assuming the spouses continue to file jointly, both halves of the credit are to be entered on the joint Schedule 8812.

There are several possible points of failure in this system:

  • The mail may not be timely delivered.
  • The taxpayer(s) may not retain the letter(s) or may not provide the letter(s) to their preparer.
  • The client may not notify the preparer that they received the credit at all.

Any of these failures can easily result in complications in the preparation of the returns. 

If the taxpayer cannot provide their tax preparer with Letter(s) 6419, and the preparer understands that the client received the ACTC, the preparer can presumably find the ACTC payments in the taxpayer’s transcript. Although transcripts are generally available online, this process can be time-consuming—and will only provide the amount of the ACTC and not the number of qualifying children.

Although recipients of the ACTC generally appreciated the payments, the processes involved in the tax filing on this program are cumbersome and appear to be subject to many problems. These recipients may not appreciate if they are not going to receive any additional Child Tax Credit or if they are required to repay the amounts received.

If the processing is similar to tax-processing issues with stimulus payments for 2020 returns, these mismatches will require manual processing of the underlying returns. Tax filing season is filled with enough challenges; the ACTC will present additional challenges and frustrations for tax preparers and clients alike.

A New Concern

We recently learned that about 50 million ACTC letters mailed on Dec. 14 – one day before the final payment – may have the wrong information. Letter 6419 may contain outdated information, especially for taxpayers who have moved or if their checks or direct deposit payments were undeliverable. In addition, the tax professional community is hearing that Letters 6419 may not be reporting accurate amounts for unknown reasons. 

Practitioners may need to verify with their clients that the amounts reports are correct. If the amounts appear inaccurate, they can be verified by pulling the taxpayer's transcripts or looking at the amounts actually deposited into the taxpayer's bank account. These latter options show the accurate amounts, which would be used by the IRS in any type of audit. 

Reconciling 2021 Advance Child Tax Credit Payments

https://www.accountingtoday.com/news/irs-child-tax-credit-letters-may-have-wrong-information

https://www.journalofaccountancy.com/news/2022/jan/limited-group-erroneous-letters-6419.html 

 

Comments

Dora Dyson

Thanks for this information.

Patty Wyatt

Thank you for your suggestion, Manjeri.

M K Ramadoss CPA

Many 2020 paper returns with overpayments to be carried forward to 2021 are yet to be processed. If a 2021 return is filed now, it would show tax due and would trigger unnecessary correspondence and heart ache to tax payers. Such taxpayers should be advised to wait until 2020 return is processed and overpayment is posted to 2021 accounts before filing 2021 return

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.

Your Information

(Name is required. Email address will not be displayed with the comment.)