2021 Advance child tax credit

[Kathleen1]

Is anyone thinking of opting out of the Advance Child Tax Credit

[TaxGuyBill]

I'm sure there are.

However, before advising any clients to opt-out, you really need to knowledgeable about WHY you think they should opt-out, and both you and the client need to be know the disadvantages of opting out.

So I think it boils down to "why" would/should a person opt-out?

[Kathleen1]

It is definitely going to take some work to determine if clients should opt out.  My concern is those who might have had lower income in 2020 because of Covid.  If their income goes back up in 2021 and they don't qualify for the advance payments, it won't be a fun conversation when we have to tell them they have to pay back $3,000 or more.

[TaxGuyBill]

Income rising above the phase-outs is a valid concern. 

However, in my opinion it would be better to warn those clients about the possibility, and if the client is concerned about a repayment they can put the Advance payments into a savings account.

[JimS_1]

I have a related question to this:  If a taxpayer has set their W-4 to withhold taxes perfectly based on the old $2k per child credit (i.e. they would owe near zero on their tax return), and now the IRS is going to pay them $1,500 for a child between 6 & 17, the taxpayer could end up owing $500 on their tax return per child  (the reduced withholding of $2k + $1,500 cash rec'd = $3,500 advanced - $3,000 credit = $500 owed). 

For some low-income individuals, this could be an unexpected burden.  Has anyone heard how the IRS is addressing this possibility?  If the child is under 6, the burden would be $200 per child. 

This could be a reason that someone could opt-out of the advance payments, but low income individuals do not usually have a tax preparer to give them this kind of advice.  Said a different way, turning down money is hard!  Curious other's thoughts.

[TaxGuyBill]

The law specifically adds a provision that W-2 withholding should be adjusted to compensate for the Advance payment.  However, I have not seen the IRS announce anything about changed withholding, so I have no idea if/when that will actually happens.

[JimS_1]

Thanks for the info! 

[JimS_1]

Hi TaxGuyBill -  I haven't seen any updates to Pub 15-T, so I assume this will be an issue (albeit small) for some taxpayers.   Have you seen anything to update payroll withholdings?

Also, in a related note, a client just got a letter from Joe B today saying that the IRS calculated their monthly payment to be $75, yet when they went on the IRS site today (July 14) it says they will be getting a deposit of $243 tomorrow.   I was able to back into the $243 amount by taking the 2019 child tax credit on their return and dividing by 12 (2020 is on extension), but I have no idea where the IRS got the $75. I reviewed the IRS literature on how it should be calculated, and I can't get close to the $75.  The client has one child that is turning 18 this year, so they shouldn't have gotten $243 anyways.... (does the IRS know the age of each child??)

It's not a big deal but I'm worried more clients are going to be asking questions....which I won't be able to answer....  Ugh.

[BobKamman]

Are you sure that letter came from IRS?  

[JimS_1]

The letter was signed by Joe B on White House letterhead (flip side in Spanish) and the envelope it came in had the IRS as the return address.

[BobKamman]

Here is the IRS Notice 6417, that your clients may have received.  Since it is in the public domain, it would be easy enough for a scammer to reproduce and include a link requesting personal data. 

https://www.irs.gov/pub/irs-utl/l6417sample.pdf  

[George4Tacks]

@JimS_1 What is the Notice # on that letter? This sounds like the 1444 series that started last year and was signed by that other guy. It is on White House stationary and is from the IRS. I have not seen this new one and the notice number might help verify it via IRS website. 

[JimS_1]

The letter is identical to the link you noted and contains no link or request for information, so it's not a scam. It's an error in calcualtion, which seems odd, hence my question.  Had it requested information or a link, I would not have posed the question to this group.

[JimS_1]

See the link Bob provided previously for what the notice looks like.   There is no notice # on the letter

Letter 6417 (en-sp) (6-2021) (irs.gov)

[tarheelgirl2294]

I am so sorry to hook up to this but Lacerte would not let me start a new discussion.  Does anyone know where I go to stop the advance child tax credit for someone who died after receiving one payment?  All I can find is if the dependent dies, not the taxpayer.  Single taxpayer who will claim dependent for time up to death.

Thanks so much.

[George4Tacks]

The taxpayer need to have an IRS account and opt out with it through https://www.irs.gov/credits-deductions/child-tax-credit-update-portal

If you prepared the return, you may be able to do it by contacting the practitioner hotline https://www.irs.gov/tax-professionals/practitioner-priority-service-r

[tarheelgirl2294]

Thank you so much for this.  That is what I thought but wasn't sure.  Take care.

[sjrcpa]

Single taxpayer claims the child as a dependent for 2021 if eligible. There is no pro rating of the dependent if the parent/guardian dies.

[tarheelgirl2294]

Thank you for your response.  I appreciate your time and comment