It's Time to Reconcile Advance Child Tax Credit and EIP - IRS Letters 6419 and 6475 Can Help

Use IRS Letters 6419 and 6475 to help reconcile your tax return in 2021.

Early in 2021 Congress passed the American Rescue Plan. This plan included a provision that increased the child tax credit amount and upped the age limit of eligible children. Normally, the credit was $2,000 per eligible child under age 17. However, for the 2021 tax year the American Rescue Plan increased the credit to $3,000 for each child under age 18. Also, the amount is $3,600 for children under age 6 at the end of the year.

What is the Advanced Child Tax Credit?

Traditionally, a tax credit benefit isn’t available until after the tax return has been filed. But for 2021, the new tax law included a provision to get the credit benefit to taxpayers as quickly as possible. They charged the Secretary of the Treasury with establishing an advance payment plan. Under this mandate, those qualifying for the credit would receive monthly payments. These monthly payments started in July and equal 1⁄12 of the amount the IRS estimated the taxpayer would be entitled to. Taxpayer information submitted on 2020 tax return was used to calculate estimates. If the 2020 return had not been filed or processed yet by the IRS, 2019 information was used.

IRS Letter 6419 Can Help Reconcile The Advance Child Tax Credit

However, these advance payments amounts were only estimates. Thus some taxpayers received too much and others not enough. As a result, it’s time to reconcile accounts. And those who received too much may need to repay a portion of the advance credit, while others may receive more.

To give taxpayers the information needed to reconcile the payments, the IRS sent out Letter 6419. Specifically, this letter is a personalized end-of-year statement. It outlines the payments received and number of qualifying children used by the IRS to determine the advance payments. Filed jointly on your prior year return? Each spouse will receive a Letter 6419 showing the advance amount received.

Do not discard IRS Letters 6419 and 6475. These letters are necessary to properly file 2021 returns.

Having received the advance credit payment, taxpayers will find their refunds will be substantially less than they may have expected. Taxpayers might even end up owing money on their tax return! But only if their AGI is low enough to qualify for the safe harbor repayment protection for lower-income taxpayers.

Example of Advance Child Tax Credit

If a taxpayer received advance child tax credit payments for two children based on the 2020 return, and the taxpayer doesn’t claim both children as dependents in 2021, the taxpayer would need to repay the excess on their return. The exception being that they are protected by the safe harbor provision.

It is also possible that one taxpayer could have received the advance child tax credit payments based on their 2020 return and not have to make a repayment under the safe harbor rule, while another taxpayer, who can legitimately claim the child, can get the credit on their 2021 tax return. Generally speaking this can happen when parents are divorced, so there’s the potential for the child tax credit to be received by both parents.

Use IRS Letter 6475 to reconcile the Economic Impact Payment (EIP)

The IRS will begin issuing Letter 6475 to Economic Impact Payment (EIP) recipients in late January. Letter 6475 lets taxpayers know if they already received the credit in advance or if they can receive the Recovery Rebate Credit on their 2021 tax return.

IRS Letter 6475 only applies to the third round of Economic Impact Payments, issued between March – December 2021. The third round of EIPs were advance payments of the 2021 Recovery Rebate Credit.

Most eligible people already received the payments. However, those who are missing stimulus payments should review the information in Letter 6475 to determine their eligibility. In this case, the letter lets them know if they need to claim a Recovery Rebate Credit for tax year 2020 or 2021.