Some folks don't have to send the Internal Revenue Service a Form 1040 every year. The reason, though, is not necessarily a welcome one.
They don't have to file because they don't make enough money to require telling Uncle Sam about it. And since the COVID-19 pandemic hit, such tax invisibility could be costly.
The IRS has been given the added job of distributing the various coronavirus relief payments. For the most part, it does so automatically, using data in its files to determine who's eligible, for how much, and then sending them the appropriate amounts.
Child tax credit early … if the IRS know about you: That's the case for some who qualify for Advance Child Tax Credit payments.
Taxpayers who qualify for the Child Tax Credit usually claim it when they file their returns. Pandemic economic hardships prompted Congress to hand out this money sooner, so eligible individuals could use it, for example, to cover income lost due to COVID-19.
The credit was expanded as part of the American Rescue Plan Act (ARPA) that became law back in March. The $2,000 tax break was hiked for the 2021 tax year to $3,600 for each child age 5 and younger and to $3,000 each for those between ages 6 and 17.
In addition, Congress added a provision that allows eligible individuals to get the child-related tax break early. And so, the Advance Child Tax Credit, or AdvCTC, was born.
The IRS plans to start sending the AdvCTC payments starting July 15. The payment will be up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 through 17. They will continue each month through December.
But the IRS can only send it to individuals for whom they have information. If someone isn't in the tax system because they haven't had to file in recent years, the IRS has no way to get them the money.
Online AdvCTC registration tool: The IRS' updated online non-filer sign-up tool now is operational. The tax agency is urging families who don't normally file tax returns to register using the online option so that they can begin receiving the AdvCTC payments next month.
Specifically, the IRS needs data from people who did not file a tax return for 2019 or 2020 and who did not use the earlier version of the non-filers tool last year to register for economic impact payments (EIPs).
The tool, which is an updated version of the earlier economic impact payment registration option, allows taxpayers to provide the information about themselves, their qualifying children age 17 and younger, and their other dependents. That way the IRS will know that they are eligible for at least some of the AdvCTC payments.
The IRS also recommends that taxpayers who have bank accounts include that direct deposit information when they register with the non-filer tool. That will enable the IRS to directly deposit the AdvCTC payments directly into their checking or savings accounts.
In addition, the online registration tool can help eligible individuals who haven't yet received the $1,400 economic impact payment (EIP) approved earlier this year. It also will help them claim the Recovery Rebate Credit if they missed out last year, but now qualify for the first two EIPs approved last year.
"We have been working hard to begin delivering the monthly Advance Child Tax Credit to millions of families with children in July," said IRS Commissioner Chuck Rettig in announcing the re-opening of the online registration option. "This new tool will help more people easily gain access to this important credit as well as help people who don't normally file a tax return obtain an Economic Impact Payment. We encourage people to review the details about this important new effort."
No tool for most: If you've already filed recent tax return or plan to do so this year, don't mess with the non-filer registration online tool. The IRS will use your 1040 info to send you any AdvCTC for which you qualify.
If you got a letter from the IRS about the AdvCTC, that's a good indication that you're already on the IRS' AdvCTC distribution list and don't need to use the registration tool.
The same don't use instruction goes for those who might qualify for other tax benefits, such as the Earned Income Tax Credit (EITC) for low- and moderate-income families.
Rather than use the online tool, instead file a regular tax return. Chance are that you also qualify to use the IRS' Free File option to file that 1040 and claim those tax breaks.
And if you discover you overlooked a tax benefit, you'll need to file an amended return using Form 1040-X.
Other tools coming soon: The IRS has created a special Advance Child Tax Credit 2021 page. There you can find the most up-to-date information about this family-friendly tax break.
The page already features a link to the Non-filer Sign-up tool. In the next few weeks, it will also feature other online options, including an interactive Child Tax Credit eligibility assistant. This program will help families determine whether they qualify for the AdvCTC.
Also on the way is the Child Tax Credit Update Portal. Here, anyone who has been determined to be eligible for advance payments will be able to opt out or unenroll from the advance payment program.
Yes, some folks might not want the advance payments. As noted in a recent Tax Notes article, some tax professionals worry that the process of getting essentially half now and the rest of the Child Tax Credit later could inadvertently lead to a tax bill next tax-filing season.
So review your individual tax situation carefully before deciding to get or not the AdvCTC.
Later, the portal will allow people to check on the status of their payments and make updates to their information. It also will be available in Spanish.
You also might find these items of interest:
- 10 reasons to file a tax return even if you don't have to
- Free File can help those who don't usually file taxes get COVID payments and more
- The child care tax credit is a good claim on 2020 taxes, even better for 2021 returns