The IRS is still going to have quite a bit of work to do until we reach the tax filing deadline of May 17. And things will not stop there as it also has to look beyond that and toward the implementation of the new Child Tax Credit.
I am sure that some of you have no idea what that is. Well, remember when the American Rescue Plan was passed and you heard about getting money every month just because you had a kid? Yeah, it’s that.
First off, those really are the basics of the expanded credit. It sounds fanciful in a way to think the government is just going to be sending people money, but it is true. Beyond that, though, there are some complications that could be involved, which I am afraid could cause some pain for some when it comes time to file taxes next year.
So now that the hubbub following the talk of the latest economic impact payment has passed and you want to know a little more about this other portion of the ARP, I’ll point you toward this article from Forbes. Though be forewarned, although it is entitled “Everything We Know About the New Child Tax Credit So Far,” it is not very long. And therein really lies the problem, for we do not know a lot and there are still a lot of unknowns when it comes to how this will be implemented.
What stands out most to me about the article falls under the heading of “The IRS Is Embracing Technology,” but has nothing to really do with technology. The technology portion is a portal the IRS plans to have set up before the (anticipated) launch of the monthly payments on July 1. That portal is assumed to allow taxpayers to opt out of receiving those monthly payments, which may be good for many.
For example, what if one qualifies for this credit based on their 2020 tax return, when they reported a lower income during a year when many had less than usual. And what if this person then has a return to normalcy based on their 2021 income? They may then find themselves having to repay some of the credit.
Or what about someone who typically has been receiving the smaller amount of the already existing Child Tax Credit and has set up their tax planning during the year to end with their filing largely being a wash, not owing much or not receiving much of a refund. If they have already received some of the credit, so that what the amount of credit remaining to be received on their tax return is smaller, there may be a much larger bill due than expected.
This is not to say that the impulse behind this credit is a bad one. It is trying to help those who need help and it is easy to envision many situations where that is going to be the result. It is also possible, however, to imagine situations where it could cause unforeseen issues. So this is just a gentle reminder that it could be worth putting a little thought into the situation and appreciating how it is going to affect you before the payments begin going out.
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