Will there be a query set up for clients eligible for the Advanced Child Tax Credit

[lbones]

I can envision many clients being caught unaware during the next filing season regarding the Advanced Child Tax Credit.  By receiving the credit during the 2021 calendar year, their anticipated refunds may be smaller than normal even with the increase from 2k to 3k or worse yet, if the client uses that credit to offset taxes due they may find themselves with an unanticipated balance due.  I would like to contact my clients and discuss with them their options and it would be helpful if I could run a query to zero in on those qualified without having to go through the client files individually.  Anything on the horizon?  

[Just-Lisa-Now-]

I havent seen anything mentioned.

[lbones]

But do you agree that this is potentially a big headache next year.  Most of the people I have spoken to think they are getting the advanced payment and then they will be getting the same anticipated refund next year as they typically get.  Will have some disappointed clients.

[The-Tax-Lady]

Sorry, incorrect information.

[lbones]

What information was incorrect?

[BobKamman]

Most of my clients have kids who left home long ago, so it's not a major concern for me.  Those with kids are smart enough that they will learn from many sources -- including me, if they ask -- that these payments are an advance on what they would otherwise receive next year.  There are some people who are smart enough to have kids but not smart enough to understand taxes, and if those are your clients it is wise to start educating them now.  

TCJA raised taxes for about half my clients, and their attitude was "oh, well."  The new withholding methods with W-4 forms resulted in a lot of people owing more or getting less back than last year.  Their attitude was "oh, well."  For some people, you can explain that their CTC is $3,000 less because of advance payments but $2,000 more because of ARP and by the way their EIC went up by $1,000 also, so the refund is about the same.  They won't really understand what you're trying to explain but will be happy with the usual check nonetheless.  

[IRonMaN]

We received a call from one of our clients yesterday wondering about the advance payment.  He was planning on sticking the money into a savings account and if he comes up short next year he will know where to find the money to cover the shortage.  I could go through my client list and easily mark which clients will be affected.  But overall, those that really need the money, have enough cushion the way it is, and those that don't have a cushion aren't going to create a financial hardship if they get the money early.  Oh well, I guess I'm not going to lose a lot of sleep over this one.

[TaxGuyBill]

I think many tax professionals (and taxpayers) don't realize that withholding is supposed to change too.  So if they have their W-4 properly filled out to 'break even' at tax time, hypothetically they will still 'break even' at tax time because the W-2 withholding is supposed to compensate for the Advance credit.

Of course that doesn't fit many taxpayers who pay Estimated Tax and other situations.  And that is assuming the IRS actually does come out with new withholding tables/formulas and the employers/payroll companies actually change it.

So besides being a political ploy, I think the Advance credit will primarily help those low-income people that have minimal withholding but have large refunds due to the Child Tax Credit and EIC.  They will be able to get part of it in Advance, rather than as a huge lump-sum.

[BobKamman]

It's a political ploy in the sense that Earned Income Credit was a political ploy, back during the Nixon Administration.  

[TaxNette]

There really needs to be a query!  It would make this much easier than going through the clients one by one determining who has qualifying children.  Now that the IRS has a website allowing clients to opt out of the payments, I would think ProSeries would have a query so we can contact the clients and send them to the IRS site if appropriate.

[Just-Lisa-Now-]

IRS sent letters out to anyone that qualifies for this, you dont need to.

[The-Tax-Lady]

I have few clients who want to revoke the 8332 for TY2021 because they don't believe it is fair for the other parent to receive the money designed "to lift children out of poverty", when they have no involvement in the child's life.

Even though I won't be doing their returns next year, I'm getting the calls. Do the regular rules for "Qualified Child" and "Separated/Divorced Parents" apply to this Advance credit, regardless of who is the Custodial/Residential parent? I've researched it a bit and I can not find any requirement that the child must have physically lived with you over 6 mos. in 2021 to be eligible for the Advance.

[TaxGuyBill]

The Advance credit is just a pre-payment of half of the actual credit on the 2021 return, so the regular rules apply to the actual credit. 

The IRS will be sending the pre-payments based on the 2020 tax return. So if the person claimed the child in 2020 but will not claim the child in 2021, that parent will likely receive the Advance credit unless they "opt-out", and if they do not "opt-out" they will need to repay the Advance credit when they file their 2021 tax return (unless their income qualifies for the "Safe Harbor" to reduce or eliminate the repayment).

Whichever parent claims the child on their 2021 return will get the $3000/$3600 regardless if the other parent received Advance credit or not.

As for the parents that want to revoke the 8332, you may want to inform them that if their divorce decree says the other parent can claim the child, they would be violating state law and could be in contempt of court, so they should consult their divorce attorney before doing such a thing.

[BobKamman]

Some people just never get over their divorce, do they?

When the child exemption and/or credit was split between former spouses, there was no way of knowing whether it would be changed. What happened is that it was increased to $3,000/$3,600. Collect it in monthly payments, or take it as a credit on the tax return for the year in which you are entitled to claim the kid.

If the noncustodial parent owes child support, they aren’t going to receive it. If the custodial parent thinks a change of circumstances justifies a recomputation of child support and tax allowances, a decree can always be modified.

The law directs IRS to try to figure out a way to keep two taxpayers from collecting based on the same kid. I figure they’re working on that, along with some other new stuff.

Bitterness isn’t good for either the parents or the kids.

[TaxNette]

We are not required to send a letter to our clients, but professional courtesy would have us contact our clients for planning purposes and to alert them that the advanced refund may create an owing situation.

[BobKamman]

My clients pay me enough money that I can afford to spend less than a minute per return to check on whether they have kids and if so, are there foreseeable problems.  But then, there are times when I feel obligated to do some work, not to figure out a way to avoid work.  

[TaxNette]

I do not mind going through the client returns for information, as you mention "take a little time to work",  but if a query were available, it would be appreciated.  

[The-Tax-Lady]

I told them to be ready to spend that money on the lawyer to defend them from the contempt charges.

That is my understanding of how it will work, just wanted to be sure there wasn't an exception I was missing. Thank you for confirming that.

[BobKamman]

My experience with some queries is that you start them running and then you go prepare Sunday dinner.  But maybe I just have a slow computer.  

[Just-Lisa-Now-]

No, depending on how many clients you have, they can take a looooong time.

[traviswbraun]

Wondering if there has been any response from Proseries regarding having this as part of the analyzer tool. I know some of you don't want to contact your clients but I agree with many preparers that people don't want to get blind sided by this and the letters sent out by the IRS aren't the best explanation of potential downside to this. No, I'm not going through everyone of my clients returns to see if they received the child tax credit. This should be implemented as I'm sure its not that difficult.