Updates On COVID-Related Tax Relief
What’s New for Pandemic-Related Tax Breaks
As the year comes to an end, it’s important to start preparing for the upcoming tax season and take stock of any tax breaks that may benefit you.
There have been many tax law changes in response to the Coronavirus pandemic that could affect your 2021 and/or 2022 taxes. This article provides information about the latest IRS news and updates regarding COVID-related tax breaks.
Child Tax Credit (CTC)
The IRS recently made the following announcement regarding the expanded Child Tax Credit (CTC):
Millions of American families will soon receive their final advance Child Tax Credit (CTC) payment for the month of December. This final batch of advance monthly payments for 2021, totaling about $16 billion, will reach more than 36 million families across the country. Most payments are being made by direct deposit.
Under the American Rescue Plan, eligible families have received more than 200 million payments totaling more than $93 billion. Most eligible families received payments dated July 15, August 13, September 15, October 15, November 15 and December 15. For eligible families, each payment is up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17.
The expanded and newly-advanceable Child Tax Credit was authorized by the American Rescue Plan Act, enacted in March. Normally, the IRS will calculate the payment based on a person’s 2020 tax return, including those who use the Non-filer Sign-up tool. If that return is not available because it has not yet been filed or is still being processed, the IRS will instead determine the initial payment amounts using the 2019 return or the information entered using the Non-filers tool that was available in 2020. If an eligible taxpayer did not file for 2019 or 2020, they may use a new online Non-filer Sign-up tool to register for the monthly Advance Child Tax Credit payments.
To help people understand and receive this benefit, the IRS has created a special Advance Child Tax Credit 2021 webpage to provide the most up-to-date information about the credit and the advance payments. The page features links to the Non-filer Sign-up Tool, and the Child Tax Credit Eligibility Assistant, and the Child Tax Credit Update Portal.
Eligible families who did not receive any advance Child Tax Credit payments can claim the full amount of the Child Tax Credit on their 2021 federal tax return, filed in 2022. This includes families who don’t normally need to file a return.
Families who received advance payments will need to file a 2021 tax return and compare the advance Child Tax Credit payments they received in 2021 with the amount of the Child Tax Credit they can properly claim on their 2021 tax return.
To help taxpayers reconcile the advance payments, the IRS will send Letter 6419 in January 2022 with 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. People should keep this and any other IRS letters about advance Child Tax Credit payments with their tax records.
RELATED: The Expanded Child Tax Credit (CTC)
Stimulus Checks (a.k.a. Economic Impact Payments) & the Recovery Rebate Credit
Federal COVID relief legislation over the past few years has provided Americans with 3 rounds of stimulus checks. The first and second rounds were distributed in 2020 and early 2021. According to the IRS, individuals who are missing the first or second stimulus payments should review the eligibility requirements to determine whether they should claim a Recovery Rebate Credit for tax year 2020. If they’re eligible to claim the Recovery Rebate Credit, they will need to file a 2020 tax return if they have not filed yet or amend their 2020 tax return if it’s already been processed.
The third round of stimulus checks is still being issued. The IRS says, “If you haven’t received a payment yet, it doesn’t mean you won’t. Ongoing payments will be sent to eligible individuals for whom the IRS previously did not have information to issue a payment but who recently filed a tax return, as well to people who qualify for plus-up payments.”
If you didn’t receive a first or second stimulus check, or you received less than the full amount, you may be able to claim the Recovery Rebate Credit on your 2020 income tax return (Form 1040 or Form 1040-SR). People who don’t normally have to file a tax return can use the IRS Non-Filer Sign-Up online tool to register for the third round of stimulus payments (worth up to $1,400 per person) and claim the Recovery Rebate Credit for any amount of the first two rounds of stimulus payments they may have missed.
RELATED: Top COVID-Related Tax Breaks
Special Tax Benefit for Charitable Donations
The IRS recently joined with several non-profit organizations to remind taxpayers about a special tax provision that allows more people to claim a tax deduction for charitable donations on their 2021 tax return. This is a COVID-related provision that allows single filers to deduct up to $300 in cash donations and married couples filing jointly to deduct up to $600 in cash donations.
Ordinarily, people who choose to claim the standard deduction cannot claim an itemized deduction for their charitable contributions. However, under the temporary law, taxpayers don’t need to itemize deductions on their tax returns to take advantage of this tax break. According to the IRS, nearly 9 in 10 taxpayers now take the standard deduction and could potentially qualify.
Retroactive Termination of the Employee Retention Credit (ERC)
The IRS recently issued a notice that provides guidance for employers regarding the retroactive termination of the Employee Retention Credit (ERC). The Infrastructure Investment and Jobs Act (enacted on November 15, 2021) amended the law so that the Employee Retention Credit applies only to wages paid before October 1, 2021, unless the employer is a recovery startup business.
IRS Notice 2021-65 applies to employers that paid wages after September 30, 2021 and received an advance payment of the Employee Retention Credit for those wages or reduced employment tax deposits in anticipation of the credit for the fourth quarter of 2021 but are now ineligible for the credit due to the change in the law. The notice also discusses how the rules apply to recovery startup businesses during the fourth quarter of 2021.