By Tom Andrews, CPA
Starting in July, taxpayers with children may have noticed a deposit from the Internal Revenue Service to their bank account. These deposits may vary between taxpayers depending on their income and the number of children they have. These Advance Child Tax Credit payments re early payments from the IRS of 50% of the estimated amount of the of Child Tax Credit that you may properly claim on your 2021 tax return during the 2022 tax filing season. If the IRS has processed your 2020 tax return or 2019 tax return, these monthly payments will be made starting in July through December 2021, based on the information contained on that return.
Since the credit is based on your most recently filed tax return (2019 or 2020) there has been confusion as to whether this credit must be repaid if your 2021 income exceeds the allowable income threshold (visit irs.gov for income tables). I believe this hazard should be of particular interest to members of the yachting community, unlike mainstream employment the income for yachting professionals may vary from year to year. For example, if your 2020 income was unusually low you may have received this Advanced Child Tax Credit starting in July however if you were fully employed during 2021 and you anticipate your income to be above the allowable threshold you might have to pay that credit back when your 2021 tax return is eventually filed. On the flip side if your income during 2020 prohibited you from receiving monthly child tax credits during 2021 you may receive that fully credit when you eventually file the tax return during the 2022 tax filing season if your income ends up being within the qualifying range.
Since there is a risk that taxpayer may have to pay back an Advance Child Tax Credit that was received despite being in eligible I have recommended that taxpayers “opt out” of receiving this credit if they are concerned there income may disqualify them. If you prefer not to receive the monthly advance Child Tax Credit you can unenroll through the Child Tax Credit Update Portal at irs.gov.
Another concern I have for yachting professional is that traveling sometimes disrupts their mail service. If you did end up qualifying for the Advance Child Tax Credit you should have received a Letter 6417 from the IRS. This letter would have informed you of the amount of your estimated tax credit monthly payments. The IRS will also send Letter 6419 in January of 2022. This letter will provide you the total amount of Child Tax Credit payments that were disbursed to you during 2021. Please keep this letter regarding your credits with your tax records. You will need this letter as part of your 2021 tax filing as you will be responsible for reconciling any credits received during the year. If you improperly claim a tax credit on your 2021 tax return the IRS will eventually reconcile their records and require the credit to be repaid.