The Advanced Child Tax Credit will require reconciliation on the 2021 tax return. The 2021 tax return should be filed prior to April 18, 2022. The IRS will be sending out letter 6419 to all recipients of the Advanced Child Tax Credit to provide the total of funds received. This letter will be important to take to a tax preparation professional to ensure accurate tax return calculations. Given the Advanced Child Tax Credit was calculated by the IRS based on 2020 tax return, there may be adjustments on the 2021 tax return as the credit relates to the 2021 tax year. Taxpayers may find that they owe because of the reconciliation between tax year 2020 versus tax year 2021. The changes that may cause a taxpayer to owe the funds back to the IRS would be related to change in income, change in custody status, or change in filing status.

The income eligibility for the credit is $75,000 for single and married filing separate, $112,500 for head of household, or $150,000 for filing joint returns, if the income has changed in 2021, they may be at risk of owing the funds back to the IRS. 

Custody issues may also result in owing the funds back to the IRS. If the parent that claimed the child on their 2020 tax return received the funds but cannot claim the child on 2021 tax return, then that parent will owe those funds back to the IRS. The parent claiming the child in 2021, may then receive a refund on their tax returns related to those funds.

Another consideration to determine is change in filing status. If the taxpayer went from filing joint return to head of household, they will need to evaluate the income level to see if they still qualify to receive the payments.

Lastly, if the child turned 18 years old in 2021 and the parent received Advanced Child Tax Credit funds for that child, then the parent would owe those funds back to the IRS.

With all the recent changes to the tax law, it is more important than ever to find a qualified tax professional to prepare your tax return. Please contact Riedel-Hogan CPA at 502-708-1118 to schedule an appointment with one of our qualified tax preparers. We offer secure remote tax preparation and look forward to serving you this tax season.

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