IRS announces two new online tools to help families manage Child Tax Credit payments…

Clients & friends, today the IRS announced two new online tools families can use to help manage their Child Tax Credit payments.

There is now a portal to unenroll from advance payments on the child tax credit. Also note that for those who are married, both spouses will need to unenroll.

For all the details, please click the link below! And as always, feel free to reach out to your CPA or tax professional at H&S with any questions!

Click here to read more!

The IRS provides updated information on advance Child Tax Credit payments

The IRS announced yesterday that they have provided updated information on the 2021 advance payments of the Child Tax Credit (CTC), including that it has started sending letters to families whom they believe may be eligible for the payments.

Background-child tax credit. Taxpayers are allowed a CTC-temporarily expanded and made refundable for 2021 by the American Rescue Plan Act (ARP Plan or ARPA, PL 117-2, 3/11/2021)-for each qualifying child. The credit phases out for taxpayers with adjusted gross incomes (over certain thresholds).

For 2021, a qualifying child with respect to a taxpayer is defined as an under-age-18 child, whom the taxpayer may claim as a dependent (i.e., a child related to the taxpayer who, generally, lived with the taxpayer for at least six months during the year), and who is a U.S. citizen or national, or a U.S. resident.

Background-advance payments of CTC.  The IRS is required to establish a program to make periodic advance payments which in total equal 50% of the IRS’s estimate of the eligible taxpayer’s 2021 CTCs, during the period July 2021 through December 2021.

In IR 2021-113, the IRS provided information about the advance payments including that they will begin on July 15, 2021. Thereafter, they will be made on the 15th of each month unless the 15th falls on a weekend or holiday.

The IRS provided updated advance payment information. They have now provided the following additional information:

  • The IRS is sending letters to families who may be eligible based on information they included in either their 2019 or 2020 federal income tax return or who used the Non-Filers tool on IRS.gov last year to register for an Economic Impact Payment.
  • Families who are eligible for advance CTC payments will receive a second, personalized letter listing an estimate of their monthly payment.
  • The IRS will issue advance CTC payments on July 15, August 13, September 15, October 15, November 15, and December 15.
  • Throughout the summer, the IRS will be adding additional tools and online resources to help with the advance CTC. For example:
    • A tool that will enable families to unenroll from receiving these advance payments and instead receive the full amount of the credit when they file their 2021 return next year.
    • An interactive CTC eligibility tool to help families determine whether they qualify for the advance CTC payments.
    • The Child Tax Credit Update Portal, which will initially enable anyone who has been determined to be eligible for advance payments unenroll/ to opt out of the advance payment program. Later this year, individuals and families will also be able to use the portal to notify IRS of changes in their income, filing status, or number of qualifying children; update their direct deposit information; and make other changes to ensure they are receiving the right amount as quickly as possible. More details will be available soon about the online Child Tax Credit Update Portal.

 

© 2021 Thomson Reuters/Tax & Accounting. All Rights Reserved.

IRS processes returns of taxpayers who paid tax on 2020 unemployment comp

In a June 4, 2021 News Release, the IRS announced that it has begun processing returns of taxpayers who paid tax on their 2020 unemployment compensation that, as a result of 2021 legislation, was not taxable.

Background-2020 unemployment compensation exclusion. The American Rescue Plan Act of 2021 (ARP Plan or ARPA) provides that, for taxpayers whose 2020 modified adjusted gross income is less than $150,000, the first $10,200 of unemployment compensation received in 2020 is not included in the taxpayer’s 2020 gross income. In the case of a joint return, the first $10,200 per spouse is not included in gross income. (Code Sec. 85(c)(1))

In IR 2021-71, the IRS announced that, for those taxpayers who had already filed their 2020 return and figured their 2020 tax based on the full amount of unemployment compensation received in 2020, IRS would determine the correct taxable amount of unemployment compensation and tax. Any resulting overpayment of tax would be either refunded or applied to other outstanding taxes owed.

IRS has begun processing the returns. IRS has announced that it is processing these 2020 returns and that, during the week of June 4, 2021, it sent more than 2.8 million refunds to filers of these returns.

IRS also noted:

  • So far, the IRS has identified 13 million taxpayers that may be eligible for the adjustment that resulted from the ARPA provision.
  • The IRS is also making corrections for the Earned Income Tax Credit (EITC), Premium Tax Credit and Recovery Rebate Credit affected by the exclusion.
  • Taxpayers who have qualifying children and who become eligible for EITC after the exclusion is calculated may have to file an amended return to claim any new benefits. The IRS can adjust tax returns for those who are single with no children and who become eligible for EITC. They can also adjust tax returns where EITC was claimed and qualifying children identified.
  • They plan to issue the next set of refunds in mid-June. The review of returns and processing corrections will continue during the summer as the IRS continues to review the simplest returns and then turns to more complex returns.
  • Taxpayers will receive letters from the IRS, generally 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.

 

© 2021 Thomson Reuters/Tax & Accounting. All Rights Reserved.

IRS has begun reviewing tax returns for unemployment compensation exclusion

The IRS has started reviewing 2020 income tax returns of eligible individuals who reported unemployment compensation, but did not claim the unemployment compensation exclusion provided by the American Rescue Plan Act (ARPA or ARP Act, PL 117-2). Individuals who paid taxes on unemployment compensation that should have been excluded from their income will begin receiving
refunds the week of May 17.

Background. Generally, an individual’s gross income includes unemployment compensation. ( Code Sec. 85(a) )However, for 2020, the ARP Act allows individuals to exclude from income up to $10,200 of unemployment compensation. For married individuals filing a joint return, this exclusion is up to $10,200 per spouse (“unemployment compensation exclusion”).

To qualify for the unemployment compensation exclusion, adjusted gross income (AGI) must be less than $150,000. This threshold applies to all filing statuses, i.e, it does not double to $300,000 for married individuals filing a joint return. Any unemployment compensation over $10,200 ($10,200 per spouse if married filing jointly) must be included on the tax return as taxable income.

IRS reviewing returns. The IRS has identified over 10 million individuals who reported unemployment compensation and filed their 2020 tax returns before ARPA was enacted in March 2021. The IRS is reviewing these tax returns, in phases, to determine the correct taxable amount of unemployment compensation and tax.

Phase one, which is underway, includes the simplest returns (single taxpayers who did not claim children or any refundable tax credits).

Phase two, which will begin after Phase one is complete, will include more complex tax returns such as those of couples filing as married filing jointly.

The IRS anticipates that it will take through the end of the summer to review and correct Phase two returns.

As part of its review process, the IRS will correct any claimed Earned Income Tax Credit (EITC) for individuals and couples without children, and the Recovery Rebate Credit.

However, taxpayers who, after the unemployment compensation exclusion is applied to their return, are now eligible for certain income-based tax credits not claimed on their original return (such as couples with qualifying children who, as a result of the exclusion, became eligible to claim the EITC) should file an amended tax return to claim those credits.

IRS will issue refunds when appropriate. After reviewing a return, the IRS will make any corrections related to the unemployment compensation exclusion automatically. The IRS will then issue any refunds resulting from its review of, and corrections to, a taxpayer’s 2020 return.

Refunds will be issued via direct deposit for taxpayers who provided bank account information on their 2020 return. If bank account information is not available (or isn’t valid), any refund will be mailed as a paper check to the taxpayers’ address of record.

The IRS will also send taxpayers a notice explaining any corrections the IRS made to their 2020 return. Taxpayers should keep any notices they receive for their records. The IRS says that taxpayers should receive these notices within 30 days of the IRS making a correction to their return.

Refunds subject to offset. Any refunds issued as a result of the IRS’s review of and corrections to a taxpayer’s return are subject to normal offsets, such as past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or certain federal nontax debts (i.e., student loans). The IRS will send a separate notice to the taxpayer if the refund is offset to pay unpaid debts.

Click here to read the full article

 

Where’s my tax refund? Americans face delays as IRS holds nearly 30M tax returns for manual processing

The Internal Revenue Service is holding 29 million tax returns for manual processing, contributing to more refund delays than are typical in a normal filing season due to sweeping tax code changes, limited resources, outdated IT systems and a backlog of unprocessed 2019 paper tax returns, according to Erin Collins, the National Taxpayer Advocate.

“As one would expect, IRS employees are stretched thin working through the manual processing of these returns,” Collins said Wednesday. “So if a taxpayer’s return is pulled for manual processing, there will be delays.”

Typically, the IRS sends most refunds within 21 days or less of taxpayers filing their return. But for some early filers, the wait for a tax refund has been six weeks to eight weeks already.

Click here for more details.

IRS announces further details of tax credits available to help small businesses…

The Internal Revenue Service and the Treasury Department announced further details of tax credits available under the American Rescue Plan to help small businesses, including providing paid leave for employees receiving COVID-19 vaccinations.

The additional details, provided in a fact sheet, spell out some basic facts about the employers eligible for the tax credits. It also provides information on how these employers may claim the credit for leave paid to employees related to COVID-19 vaccinations.

Eligible employers, such as businesses and tax-exempt organizations with fewer than 500 employees and certain governmental employers, can receive a tax credit for providing paid time off for each employee receiving the vaccine and for any time needed to recover from the vaccine. For example, if an eligible employer offers employees a paid day off in order to get vaccinated, the employer can receive a tax credit equal to the wages paid to employees for that day (up to certain limits).

Click here to read the full article

Small businesses have until May 31 to apply for a forgivable loan

On Tuesday, President Biden signed into law a two-month extension of the Paycheck Protection Program (PPP) one day before the coronavirus relief fund was poised to expire, giving small businesses until May 31 to apply for a forgivable loan. Click here for more details.

IRS to recalculate taxes on unemployment benefits…

Dear Clients & Friends, the IRS has announced that they will start sending out the refunds in May for recalculated unemployment returns that have been filed. Click here to read more.

As always, please feel free to reach out to your H&S tax professional with any questions!

Tax Day for Individuals Extended to May 17

The IRS has extended Tax Day for federal individual returns to May 17!

Michigan has not announced their intentions yet, but our expectations is that they will follow suit.

 

Click here for more information.

 

As always, feel free to contact your H&S professional with questions!

Targeted EIDL Advance Update

Hi folks! If you previously received an EIDL Advance for less than $10,000, or applied but received no funds due to lack of available funding, you may be eligible to receive advance funds of up to $10,000 now. The SBA will be reaching out to those who qualify, so no action is needed at this time. Click here (and scroll down to the Targeted EIDL Advance section) to read more on the SBA website.