The IRS has extensively updated for 2021 individual tax returns its website's frequently asked questions (FAQs) on the child tax credit and its advance payments. The updates also were released as a 21-page fact sheet (FS-2022-03).
One of 14 topic headings is "Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return," which now begins to be of paramount importance to taxpayers with qualifying children and those taxpayers' return preparers, as the IRS announced Monday it will begin accepting returns on Jan. 24. A general FAQ notes that taxpayers must compare the total amount of advance child tax credit payments they received during 2021 with the amount of the child tax credit they can properly claim on their 2021 tax return.
The monthly advance payments began in July 2021 for most qualifying taxpayers and ended with the payment in December. They should in most cases total half the amount of the credit claimable for the full year. An FAQ (A11) notes that taxpayers who received advance credit payments will receive Letter 6419 this month reporting to them the total amount of their payments and that they should use this information in making the reconciliation.
Married taxpayers filing jointly receive two Letters 6419
This reconciliation is made on Schedule 8812, Credits for Qualifying Children and Other Dependents, of Form 1040, U.S. Individual Income Tax Return. The draft instructions for Schedule 8812 for 2021 note that "[i]f you filed as married filing jointly on your prior year return then both you and your spouse will receive a Letter 6419" (page 2).
Repayment of excess advance credit payments
The FAQs also discuss the circumstances under which some taxpayers may have to repay excess advance child tax credit payments, such as in a shared-custody arrangement, when a taxpayer with a qualifying child on the taxpayer's 2020 return is not claiming a child on the taxpayer's 2021 return but received the advance credit payments (FAQ L2).
More commonly, a taxpayer may have received advance credit payments based on income from a 2020 return that was lower than the taxpayer received in 2021 and thus may have a lower-than-expected child tax credit for 2021 or be required to repay it (FAQ F4).
In other cases, a taxpayer may have been eligible for advance credit payments or higher payments but did not receive them, as when a child is claimed on the 2021 return but not on the taxpayer's 2020 return and not reported to the IRS during 2021, such as via the IRS's Child Tax Credit Update Portal (FAQ F3).
Other FAQs address situations in which a taxpayer may not be required to repay the full or a partial amount of excess advance credit payments (FAQs H3 through H7).
Residents of US territories
The FAQs also note that residents of Puerto Rico were not eligible to receive advance credit payments but may be eligible for the child tax credit on their 2021 Form 1040-PR, Planilla Para la Declaración de la Contribución Federal Sobre el Trabajo por Cuenta Propia (Incluyendo el Crédito Tributario Adicional por Hijos para Residentes Bona Fide de Puerto Rico), or 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico). Residents of some, but not all, other U.S. territories were eligible for advance child tax payments with their respective U.S. territorial tax agencies, as described in FAQs I3 and I4.
— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.
