Part of the collateral damage from the showdown between President Joe Biden and US Senator from West Virginia Joe Manchin over Biden’s $1.9 trillion COVID-19 relief package has been the elimination, as of last Friday, monthly federal child tax credit deposits.
The credit itself continues into 2022, but will only return to families once they file their taxes in early 2023. The same goes for the current tax season and the other half of the credit from last year which was not paid monthly.
Nicole DeRosa, senior tax manager of Florham Park-based Wiss & Co. and chair of the New Jersey Society of Certified Public Accountants’ Emerging Leaders Council, said the child tax credit shouldn’t be new to those who have children.
Yet even in addition to the short-lived monthly payment option, there are other differences in the current program compared to years past.
First, the amount of the credit has increased from $2,000 per eligible child to $3,600 for those who were 5 years old or younger at the end of 2021, and $3,000 for children aged 6 to 17. .
“That $500 non-refundable credit for other dependents hasn’t changed, so really only the amounts have been significantly increased,” DeRosa said.
However, The Associated Press reported Friday that full payments for 2022 would only go to families who earned enough to owe taxes, potentially limiting credit for poorer Americans.
New Jerseyans who qualified, opted in, and received the monthly payments last July through December should note that when they file their taxes this winter or spring.
“What’s happened is now, instead of claiming everything with your tax return, there’s now this prepayment that a lot of people are familiar with,” DeRosa said. “They need to be reported and reconciled on the 2021 tax return, so it will be very, very important for taxpayers to make sure they are claiming this credit correctly.”
That could be a tricky calculation, DeRosa warned, and could lead to significant delays for anyone, even unwittingly, misrepresents the amount they’ve already pocketed.
She said if discrepancies are found on this credit or other credits, the Internal Revenue Service orders a second level of review, which means up to four months of safeguarding any applicable refunds.
The IRS doesn’t process returns with these types of credits at the start of tax season, DeRosa said, so she recommends not being first in line to file.
That doesn’t mean waiting until the very last minutes in mid-April, but take your time.
Most importantly, be on the lookout for IRS letter 6419, which was sent out this month and last.
“Don’t throw away that letter from the IRS,” DeRosa said. “Make sure you keep it and use it, whether you prepare your own tax return or have your tax return prepared by a professional.”
The Associated Press contributed to this report.
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