The Internal Revenue Service will begin issuing refunds this week to eligible taxpayers who paid taxes on 2020 unemployment compensation that the recently enacted American Rescue Plan later excluded from taxable income. The IRS identified over 10 million taxpayers who filed their tax returns prior to the American Rescue Plan of 2021 becoming law in March and is reviewing those tax returns to determine the correct taxable amount of unemployment compensation and tax. The IRS will issue periodic payments starting in May through the summer.
Also, the Illinois Department of Revenue has begun recalculating electronically filed 2020 individual income tax returns and will notify taxpayers who filed before March 15, 2021 of the systemic adjustment of their AGI and the amount of any refund due. Eligible taxpayers can expect to receive their refund checks approximately two to three weeks after they receive a notification letter from the Illinois Department of Revenue.
Clients do not have to file an amended return or do anything; the recalculated amounts will automatically be directly deposited in their account or a check issued.
The American Rescue Plan Act of 2021 suspended the requirement that taxpayers increase their tax liability by all or a portion of their excess advance payments of the APTC for tax year 2020. The IRS has announced that taxpayers who may have had excess Sec. 36B premium tax credits to report for the 2020 tax year are not required to file Form 8962, Premium Tax Credit, or report an excess advance premium tax credit (APTC) repayment on their 2020 Individual Income Tax Return.
CCH has corrected this issue is not calculating the excess advance payments. Form 8962 is not included in the e-filed tax return.
The American Rescue Plan Act of 2021 expanded the child tax credit in March, increasing the maximum credit from $2,000 per child to $3,000 for those age 6 to 17 and to $3,600 under age 6. The expanded part of the credit begins shrinking as income rises above $75,000 for individuals, $112,500 for heads of household and $150,000 for married couples. The $2,000 credit starts phasing out when income reaches $200,000 for individuals and $400,000 for married couples.
Tens of millions of households will receive up to $250 a month per child between age 6 and 17 and up to $300 per child under age 6, based on their ages at the end of 2021. The monthly payments will start on July 15 and will continue until the end of the year. Since the monthly payment period will provide only half the year’s credit, taxpayers can claim the remaining amount on their 2021 tax return when they file in 2022.
Questions? Fill out our contact us form to connect with a member from our tax department or give us a call at 847-956-1040.
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