Tax season is here once again and for many of us and that means it's a time full of confusion and many, many questions. So, to help make this time of the year feel a little bit less scary I asked Andy Phillips, a Director with the Tax Institute at H&R Block, to answer a few tax questions.
Tax Time Q&A
Q: We’ve all been hearing a lot about how the IRS has been overwhelmed. How is that going to impact all of us this tax season?
Andy: It does go back a couple years. So, a little context setting, going back to March of 2020 when the COVID pandemic really first hit. Like a lot of other organizations, the commission of the IRS made a decision for the safety and health of his employees to shut down temporarily many of their processing centers that are processing tax returns. All of that paper, tax returns, correspondence letters, and things like that took several months to convert that work into a work from home friendly format.
In addition to just running tax season, the IRS has also administered three rounds of economic impact payments, commonly referred to as stimulus payments. They also had the opportunity to advance a portion of the Child Tax Credit over the second half of 2021. All of that adds up to the IRS having a backlog right now largely consisting of paper. Anyone submitting paper to the IRS can expect a lengthy wait as they work through that backlog.
Q: There have been some pretty big changes to the Child Tax Credit in 2021. First, what is the Child Tax Credit?
Andy: The Child Tax Credit has been around for several years. Some of the high points are that this is a credit that you claim on your federal tax return for children that meet certain eligibility requirements. They need to meet certain relationship tests such as they are a child, stepchild, foster child, sibling, or another eligible relationship where you provide over half of their financial support. Generally, this individual is someone who lives with you over half of the year, has a social security number, and in most years, it was required that they were under the age of 17. In previous years the Child Tax Credit was $2,000 per eligible child.
Q: I’ve heard that some individuals might not have been eligible to receive the full benefit from this credit, is that true?
Andy: One thing that held people back from getting the full benefit was that it was not fully refundable. What this meant was that people who didn't owe any money to the IRS, particularly those with lower incomes, would only able to receive up to $1,400 as a refundable credit instead of the full $2,000.
Q: How are the changes to the Child Tax Credit impacting families?
Andy: First, the Child Tax Credit is fully refundable. That means even if you don't own any taxes, even if you haven't earned any income, but you have an eligible child, you get the full tax credit as long as they meet the other eligibility requirements.
The second change is that in prior years the child had to be under 17 years old during the tax year. A special one time rule was put in to place for 2021 that allowed children up to 17 years old to remain eligible.
The next change is that the Child Tax Credit has been expanded substantially. It's been $2,000 for a few years is now, but for 2021 it is much bigger. For eligible children between ages six and seventeen, you can receive a $3,000 credit. For eligible children under six it's $3,600.
The last piece I'll touch on is that this new expanded credit came as a result of the American Rescue Plan Act that was passed back in March of 2021. This allowed up to one half of the credit to be advanced in monthly payments starting in July of 2021. You may have started to notice beginning in July, that you were receiving a monthly payment of somewhere between $250 to $300 per eligible child.
One thing to remember this year is that when filing your tax return this year make sure that you account for that the advanced monthly payments you received. You should have received IRS Letter 6419 either in December or January telling you how much was advanced to you. It is really important to make sure you have that letter on hand because if you don't put in the proper advanced payment amount you can fall into special processing with the IRS.
Q: Andy thank you so much for answering these questions. If people need some help filing their taxes this year because of all of these changes what are some options out there for them if they need some help?
Andy: H&R Block is here to help and it doesn't matter how you want to file. We've got a top of the line online, do it yourself product where you can file on your own with self-help content to help you along the way.
If you want to raise your hand along the way and just ask a question of one of our tax experts, you can do that. Or maybe you just feel like this is a little bit over your head and you just want to hand things off to someone. H&R Block has a feature called Tax Pro Review where you can actually wrap up your return and one of our tax professionals will fully look it over, make sure you got it all right, and file it for you. You can also just hand everything off to an expert from the start.
H&R Block has offices open all over the country and we are able to help generally within five miles of the vast majority of Americans. If you would rather work with someone from the comfort of your own home you can connect with one of our tax professionals without ever leaving your couch or taking off your pajamas. So, we've got you covered with options.
Get the help you need this tax season and beyond
As we mentioned in our conversation, if you want some help navigating this crazy complex tax system visit PopcornFinance.com/HRBlock.
Visiting this link not only helps you get a great deal on filing your taxes, but it also supports the work we do here at Popcorn Finance and keeps the popcorn flowing.
I highly recommend getting some help when it comes to preparing your taxes, especially as things continue to get more complex. There's so much that you can forget so it's always great to have another set of eyes helping you along the way.
There is even more tax content available
My conversation with Andy was actually much longer. There was a lot of great information that just couldn't fit into this bag of popcorn. So I've put together some bonus content for you.
This tax season has been full of questions. It doesn't help that calling the IRS means hours on hold. This week I'm joined by Andy Phillips, a Director at The Tax Institute at H&R Block, to learn more about why the IRS is so difficult to get a hold of and the impacts of the changes to the Child Tax Credit.
Ep 289: What Can Cause IRS Refund Delays?
Andy Phillips, a Director at The Tax Institute at H&R Block, is back
for a bonus episode to discuss some of the things that can cause a
delay in your tax refund this year.