In an effort to help struggling families soldier on through the economic challenges induced by the pandemic, the U.S. government instituted the Advance Child Tax Credit. An offshoot of the standard Child Tax Credit (CTC), this program enabled qualifying parents and guardians to start taking advantage of the tax credit in the summer of 2021, rather than at the filing of their 2021 tax return.

With monthly installments beginning in July 2021, families were able to benefit from much needed aid as many continued to endure undue financial burdens in the ongoing wake of COVID-19. All qualifying families were automatically enrolled in the program unless they elected to opt out via a special link on the IRS’s website.

If you are one of the millions of families who took advantage of the Advance Child Tax Credit, know that there are tax implications for your upcoming 2021 tax return.

What you can expect from the IRS

In anticipation of the 2021 tax season, the IRS has already started contacting the families who took advantage of the Advance Child Tax Credit.

If you are a participant, you may have already received a letter (Letter 6419) from the IRS showing the total amount of advance payments you’ve received to date. The IRS will continue sending Letter 6419 to families through January 2022.

What you need to do

If you receive Letter 6419, hold onto it. You’ll need it to correctly reconcile the Child Tax Credit when you file your 2021 tax return.

As monthly installments were only issued from July 2021 to December 2021, families are still due to receive the remainder of the credit in 2022. Monthly installments, however, will not continue in 2022; instead, the second half of the credit will be applied to participants’ 2021 tax returns.

What if I didn’t receive Letter 6419?

If you haven’t received this letter by the IRS and don’t receive it by the end of January, you still need to reconcile the Child Tax Credit on your tax return.

You can do this by using the IRS Child Tax Credit Update Portal, where you can verify the amount of total advance payments you received in 2021.

Why is it important to reconcile the CTC and file my 2021 tax return?

While reconciling the Child Tax Credit on your 2021 tax return may seem like yet another complex step in the tax-filing process, it’s in your best interest to do so. Until you make the reconciliation, the IRS will hold the remainder of the credit you’re due.

For all families with eligible children, it’s doubly important to file a tax return for 2021, as the Advance Child Tax Credit is fully refundable. This means that you may be eligible for a refund even if you owe nothing in taxes for the year—and it's a refund you sorely don't want to miss. If you receive the full credit, you're eligible to receive $3,000 for children between ages six and 17 and $3,600 for children who were under the age of six in 2021.

Meanwhile, if you haven’t received any monthly payments to date from the Advance Child Tax Credit, then filing your 2021 tax return is your chance to get the full tax credit for each eligible child in your family.

If you need help reconciling the Advance Child Tax Credit on your 2021 tax return or otherwise preparing for the 2021 tax season, contact Perlson LLP professionals at 516-541-0022.