Tax Season – What’s Different This Year?

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This tax season is not going to be easy. Is it ever? Probably not, but there is more that needs to be kept track of for 2021.

What is new that you need to pay attention to is keeping track of the third “Economic Impact Payment” and the “Advance Child Tax Credit.” If these payments you received to help deal with the pandemic are not reported correctly on your tax return, it may hold up your refund for months.

The third Economic Impact or “stimulus” payment of $1,400 per person, including dependents, received in or about April of 2021 will be reported to you by the end of January 2022 on IRS letter 6475. Please save this letter and give to your tax professional for entry into your tax return. If you received less than what you qualified for on your 2021 tax return, you will be either refunded that amount or it can be applied to the federal taxes you owe. If you received more than you were supposed to receive, due to higher income in 2021 than 2020 that puts you in the phase-out of the credit range, no sweat. The IRS will let you keep it.

If you had child dependents on your 2019 or 2020 tax return, you likely received the advance payments from July to December of 2021 which paid out fifty percent of 2021 child tax credit ($3,600 for children under age six and $3,000 for ages six to seventeen), unless you specifically went to the IRS’s website and declined to receive the advance payments. For those that received the payments, you will receive IRS letter 6419 by the end of January 2022. Each member of a married couple will receive their own IRS letter with half of the advance child tax credit received. Again, save those IRS letters reporting the advance credit that you and your spouse received and give it to your tax professional. 

Now there is a difference with the advance child tax credit. If you received more than you qualified for—perhaps you could not claim your child in 2021 as a dependent—you cannot keep that money. You will have to adjust for it correctly in your 2021 income tax return. 

The 2021 income tax season will cause headaches for taxpayers, tax preparers and the IRS alike. For families, getting the advance child tax credit in your bank account helped you meet family expenses, but the downside may be a less than expected tax refund or a higher tax due with your filed 2021 tax return. Whatever your tax situation, just make sure you provide the correct information to your tax professional and avoid the frustration that is certain to come if the IRS and NYS must hold up processing your tax return. If the reported information in the tax return does not match what the IRS has in its systems, your tax refund may be held up the entire spring and summer.