Starting in July, taxpayers with children may have noticed a deposit from the IRS to their bank account. These deposits may vary between taxpayers depending on their income and the number of children they have.
These Advance Child Tax Credit (ACTC) payments are early payments from the IRS of 50 percent of the estimated amount of the credit that you may properly claim on your 2021 tax return during the 2022 tax-filing season. If the IRS has processed your 2020 tax return or 2019 tax return, these monthly payments will be made starting in July through December 2021, based on the information contained on that return.
Since the credit is based on your most recently filed tax return (2019 or 2020), there’s been confusion as to whether this credit must be repaid if your 2021 income exceeds the allowable income threshold (visit irs.gov for income tables). This hazard should be of particular interest to members of the yachting community — unlike mainstream employment, the income for yachting professionals may vary from year to year. For example, if your 2020 income was unusually low, you may have received this ACTC starting in July. However, if you were fully employed during 2021 and you anticipate your income to be above the allowable threshold, you might have to pay that credit back when your 2021 tax return is eventually filed. On the flip side, if your income during 2020 prohibited you from receiving monthly child tax credits during 2021, you may receive that full credit when you eventually file the tax return during the 2022 tax filing season (if your income ends up being within the qualifying range).
Since there’s a risk that taxpayers may have to pay back an ACTC that was received despite being ineligible, I recommend that taxpayers “opt out” of receiving this credit if they’re concerned their income may disqualify them. If you’d prefer not to receive the monthly ACTC, you can unenroll through the Child Tax Credit Update Portal at irs.gov.
Another concern I have for yachting professionals is that traveling sometimes disrupts their mail service. If you did end up qualifying for the ACTC, you should’ve received a Letter 6417 from the IRS. This letter would have informed you of the amount of your estimated tax credit monthly payments. The IRS will also send Letter 6419 in January 2022. This letter will provide you the total amount of ACTC payments that were disbursed to you during 2021. Please keep this letter regarding your credits with your tax records. You’ll need this letter as part of your 2021 tax filing as you’ll be responsible for reconciling any credits received during the year. If you improperly claim a tax credit on your 2021 tax return, the IRS will eventually reconcile their records and require the credit to be repaid.
This article originally ran in the October 2021 issue of Dockwalk.