Tax Tip Tuesday: Child Tax Credit & Stimulus Letter

Tax Tip Tuesday

Getting anything in the mail from the IRS is enough to invoke fear and trembling.  However, this year, you want to be on the look-out for any correspondence from the IRS.  Strange, I know!  But the IRS is sending informational AND very important letters to millions of people and this letter will be necessary when filing your 2021 tax return. Now, here’s the rest of the story.

If you received any portion of the advance child tax credit or the third stimulus payment in 2021, be on the lookout in your mailbox for a letter from the IRS. Here’s why:

Advance Child Tax Credit

Essentially the money that was sent to millions of families with eligible children from July through December constitutes half of the tax credit.  To get the balance of the credit, families will have to show what they received as a means of reconciliation to get the balance of that credit applied on their tax return.  Failure to reconcile that credit can lead to the tax refund being held up.  Letter 6419 will include the total amount of advance Child Tax Credit payments taxpayers received in 2021 and the number of qualifying children used to calculate the advance payments.  The purpose is to help the taxpayer reconcile and receive all the Child Tax Credits to which they are entitled.

Bev Stitely, EA PFP  
Tax Strategist, Owner 
Saunders Tax & Accounting

What if you don’t receive this letter?

Not to worry, there are other ways to make sure you have the correct information to file your taxes properly. Families can also check how much they’ve received through the advanced child tax credit payments using the IRS CTC Update Portal

Why do I have to file a tax return?

It’s important that all families with eligible children file their taxes this year. Because the enhanced child tax credit was made fully refundable for 2021, families with eligible children may get a refund even if they do not owe any taxes for the year.  The enhanced child tax credit is $3,000 for children 6 to 17 and $3,600 for those under the age of 6 in 2021 for those receiving the full credit.  Filing a tax return is also an opportunity for those who haven’t received advanced payments to get the full credit for each child that’s eligible.  As with any credit, if you received it in advance of filing your tax return,your tax refund may be significantly less than prior years.  Again, this is because a portion of your refund was received during the course of the year.

2021 Stimulus Check

The American Rescue Plan, passed in March 2021, allowed most Americans to receive a direct payment of up to $1,400 each plus $1,400 for their dependents.  People who received the third stimulus check, officially called the 2021 Economic Impact Payment, will receive Letter 6475 from the IRS. This letter is only for those who received the third payment, including the “plus-up” payments, which were issued starting in March 2021 and continued through December 2021. (Plus-up payments were for people who may have received their EIP after the IRS received updated eligibility information about them.) 

This letter will help Economic Impact Payment recipients determine if they are entitled to and should claim the Recovery Rebate Credit on their tax year 2021 tax returns that they file in 2022.

Whether you receive one of the letters or not, whenever receiving a correspondence from the IRS, be sure to open it and read the reason for the communication.  In the event the letter is NOT about the advance child tax credit or the economic impact payment, be sure to follow-up on the reason and seek professional tax assistance when necessary.  As with any IRS letters, be sure to keep a copy with your tax records.

If you still have questions, my staff and I would be happy to help you. Contact us HERE.  Or read more about getting ready for the 2021 tax filing season HERE.