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News

Save Your Child Tax Credit Letters from the IRS!

The IRS will be sending out Letter 6419 in January of 2022 to let taxpayers know how much advance payments they received for the child tax credit. Please keep this letter with your tax records and bring it in during tax time so we can report this on the tax return. If you do not have this letter, the amount reported on the tax return may not be correct, which can result in: delayed processing of the return, lower refunds received, or more to pay in to the IRS.

401k and Simple IRA increases for 2022

The limits for 401(k), 403(b), and most 457 plans will increase to $20,500 for 2022. The catch up limit for people aged 50 and over is at $6500; the total contribution can be up to $27,000. Here is the IRS release with more details: IRS announces 401(k) limit increases to $20,500

The limits for a Simple IRA contribution will increase to $14,000 for 2022. The catch up limit for people aged 50 and over is $3000; the total contribution that can be made is up $17,000. Here is the updated IRS page with more details: Retirement Topics – SIMPLE IRA Contribution Limits

Child Tax Credit Changes & Advance Payments

The IRS has changed the Child Tax Credit that is available to taxpayers for the 2021 tax year. The amount previously was $2000 per child. For 2021 only, the amount is now $3600 for a child under 6 and $3000 for a child age 6 – 17 (the child’s age at December 31, 2021 is how the IRS determines this). As of now, 2022 will revert to the 2020 tax law of $2000 per child.

Advance payments are being made for half of the child tax credit that started in July and will go through December. For example, if you have 1 child that is 5 years old, you would receive $300 per month to get $1800 of the child tax credit. The other $1800 would then be claimed on your 2021 tax return. You can opt out of these payments or update your bank account information through the IRS site. Please let us know if you received the advance child tax credit payments and how much you received when we do your 2021 tax return as we will need to reconcile this on the tax return. If there is some incorrect information that is on the tax return, there would likely be delays in the processing of refunds as the IRS will correct this on their end. If you do opt out of the advance payments, you would still be eligible to claim the entire child tax credit amount on your tax return (assuming you are not phased out, discussed next).

This tax credit is based on your most recently filed return, whether it be the 2020 return or the 2019 return. The expanded credit does start to phase out if your adjusted gross income for 2021 is over certain levels: $75,000 Single, $112,500 for Head of Household, and $150,000 for Married Filing Joint Returns. The credit is reduced by $50 for each $1000 you are over the adjusted gross income limit. This phaseout is only limited to the additional $1600 for children under 6 and $1000 for children age 6-17; it will not affect the usual $2000 received per child. If your income was under the phaseout levels on your 2020 return (or 2019 if it’s the most recent filing) but will be over those amounts on the 2020 return, you may want to consider opting out of the advance payments as you will not be eligible for those payments. You can opt out using the link above.

Parents who alternate claiming children should take extra caution with the advance payments. If Parent A claims the child in even years and Parent B claims in odd years, Parent A will want to opt out of the advance payments as they will not be eligible for them and will have to pay them back when their tax return is filed. Parent B will then be able to claim the entire child tax credit on their 2021 tax return.