How nonfilers can claim advance child tax credit payments.

In Rev. Proc. 2021-24, the IRS clarified how individuals who are not otherwise required to file 2020 federal income tax returns can claim advance child tax credit (CTC) payments as well as stimulus payments (i.e., third-round economic impact payments, 2020 recovery rebate credit payments, and additional 2020 recovery rebate credit payments). Click here for more information.

The Tax Advisor

Monthly Payments of Refundable Child Tax Credit. Payments to begin in July.

The first monthly payment of the expanded and newly-advanceable child tax credit (CTC) will be made on July 15. The increased CTC payments will be made on the 15th of each month unless the 15th falls on a weekend or holiday. Families who receive the credit by direct deposit can plan their budgets around receipt of the benefit. Eligible families will receive a payment of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above. 

Eligible taxpayers who do not want to receive advance payment of the 2021 CTC will have the opportunity to decline receiving advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children. More details on how to take these steps will be announced soon

The IRS released Rev. Proc. 2021-24, which includes instructions for individuals not otherwise required to file 2020 Federal income tax returns to file returns to receive CTC, 2020 recovery rebate credit payments, additional 2020 recovery rebate credit payments and third-round economic impact payments. The first procedure permits these individuals to file simplified returns. The second procedure enables these individuals to file complete returns electronically even if they have zero adjusted gross income. 

For paper filing, indicate “Rev. Proc. 2021-24” at the top of the return. When e-filing, enter $1 as taxable interest on Line 2b of the form; $1 as total income on Line 9 of the form; $1 as AGI on Line 11 of the form; and $1 as itemized deductions on Lines 7 and 8 of Schedule A (Form 1040-NR) and Line 12 of Form 1040-NR (Form 1040-NR filers only).

NAPT – Tax Pro Weekly

American Families Plan

The White House released the American Families Plan, and during President Biden’s national address, he discussed the proposal. The plan includes the extension and expansion of the child tax credit, the earned income tax credit, the child and dependent care tax credit and ACA premium tax credits. The plan also contains tax increases including increasing the top individual tax bracket to 39.6%, increasing the capital gains rates for high income individuals and removing the like-kind exchange rule.

As Congress drafts and debates legislation, we’ll keep you informed of all the latest changes and specifics. 

Click Here — for more details

Important information for taxpayers from the Massachusetts Department of Revenue

Some important, recent legislative changes will have an impact on Massachusetts taxpayers. The changes affect the treatment of unemployment income and Paycheck Protection Program [PPP] loan forgiveness. Additionally, the individual income tax filing and payment deadline was recently extended. Click here for more information.

Important information for taxpayers from the Massachusetts Department of Revenue

Please take some time to review these important tax matters, which could have an impact on your tax compliance. Many of the provisions summarized here were included in the Commonwealth’s FY21 budget. Click here for more information.

Special Alert President to sign American Rescue Plan Act of 2021 NATP

The House and Senate have just passed the American Rescue Plan Act (ARP) and shortly the president is expected to sign it into law. This bill includes many provisions that have major tax impacts for 2020 and 2021 tax returns.

2020 tax-free unemployment benefits
Initially, the bill didn’t include retroactive tax provisions, but during the Senate’s voting session, a compromise was made on unemployment benefits that will affect 2020 tax returns. The bill provides a $300 weekly federal unemployment benefit through Sept. 6 and also makes the first $10,200 of unemployment payments nontaxable ($20,400 in the case of a joint return, but only $10,200 per spouse) in 2020 for households earning less than $150,000.

NATP understands the burden this puts on you during your busiest time of year. We reached out to our contacts at the IRS to find out if the IRS will process refunds for returns already filed, or if taxpayers will need to amend. The IRS responded, “We do not have any information or guidance to share regarding unemployment and the American Rescue Plan.” When the IRS provides guidance, we’ll immediately pass it along.

Retroactive advanced premium tax credit
An individual can receive an advanced premium tax credit (APTC) to lower their monthly health insurance payment (premium). If at the end of the year they have received more APTC than the credit allowed based on final household income, the taxpayer does not have to pay back the excess when filing their 2020 federal tax return. For those who have already filed their 2020 return, we are waiting for guidance as to how to get the refund.

Recovery rebates to individuals
Single taxpayers with AGI under $75,000 will receive a $1,400 refundable tax credit, while joint filers with AGI under $150,000 will receive $2,800. In addition, taxpayers will receive $1,400 for each qualifying dependent (including adult dependents). The credit will completely phase out at an income threshold of $80,000 for single filers and $160,000 for joint.

The Treasury is directed to issue this credit as an advance payment based on the information on 2019 or 2020 tax returns. This credit will be reconciled on the 2021 tax return. Taxpayers who are married to undocumented residents will be able to receive the stimulus payments. If your client has changes to income, dependencies, or filing status, it may be advantageous to file before/after these payments are issued.

Child tax credit
Special rules for 2021 include an expansion of the credit from $2,000 to $3,000 per eligible child under age 18 ($3,600 per child under age 6). The fully refundable credit, with 50% of the credit issued as advance periodic payments starting in July, will be reconciled on the 2021 tax return. For 2021, the increased credit amount (additional $1,000 or $1,600 per-child in excess of the present-law $2,000 per-child) begins to be phased-out at $75,000 ($150,000 for MFJ and surviving spouse and $112,500 for head of household). Once the increased credit amount is reduced, the credit plateaus at $2,000, and the phaseout begins at $200,000 ($400,000 for MFJ).

Starting in July, the Treasury will issue advance payments of the child tax credit based on 2019 or 2020 tax return information. The Treasury is tasked with establishing an online portal to allow taxpayers to opt out of receiving advanced payments and provide information regarding changes in income, marital status and the number of qualifying children for purposes of determining each taxpayer’s maximum eligible credit.

Earned income credit
For 2021 only, the bill expands the eligibility and the amount of the earned income credit (EIC) for taxpayers with no qualifying children. The maximum credit amount for childless people will increase from $543 to $1,502. For 2021, taxpayers can use their 2019 income if it was higher than 2021.

The bill also includes permanent changes, allowing a married but separated individual to be treated as not married for purposes of the EIC if a joint return is not filed and the individual lives with a qualifying child for more than half the year. Individuals who otherwise would be eligible for EIC, but whose children do not have Social Security numbers, are now permitted to claim the childless credit. The disqualified investment income limit has increased from $3,650 (2020) to $10,000 and will be adjusted for inflation.

Other provisions
The act includes other tax changes, such as:
– Refundability and enhancement of child and dependent care tax credit
– Increase in exclusion for employer-provided dependent care assistance
– Extension and expansion of the Families First Coronavirus Response Act (FFCRA) paid sick leave and paid family leave credits.
– Extension of employee retention credit
– Modification of the premium tax credit
– Change to the tax treatment of targeted economic injury disaster loan (EIDL) advances
– Exemption of student loan forgiveness from federal taxation through
– Expanded COBRA continuation coverage premium assistance credit

Eligible Paycheck Protection Program expenses now deductible

The Treasury Department and the Internal Revenue Service issued guidance today allowing deductions for the payments of eligible expenses when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the Paycheck Protection Program (PPP). Click here for more information.

Get Ready for Taxes 2021

Washington Dec 8, 2020 – The Internal Revenue Service today encouraged taxpayers to take necessary actions in the final weeks of the year to help file federal tax returns timely and accurately in 2021. Click here for more information.

IRS PPP Loan Guidance

The IRS released two pieces of guidance relating to PPP loans.

According to Rev. Rul. 2020-27, businesses that receive PPP loans in 2020 may not deduct expenses paid with the loan funds, if they “reasonably expect” the loan to be forgiven in 2021. The revenue ruling also provides guidance if, as of the end of the 2020, the PPP loan participant has not applied for forgiveness, but intends to apply in the next taxable year.

Conversely, Rev. Proc. 2020-51 provides that if a business did not deduct expenses in 2020, and some, or all, of the loan that was expected to be forgiven, is not in fact forgiven, they may either deduct the expenses on an amended 2020 return or deduct the eligible expenses on their 2021 return if they qualify for the safe harbor.