Tackling your questions about Tax Credits
As a taxpayer (whether individual or employer), you may be entitled to some tax credits. The American Rescue Plan (ARP) passed in March of 2021 created some new tax credits or expanded some current tax credits. The IRS just released a series of news releases related to some FAQs as a result of the ARP. Here are some of the areas that they are tackling:
1. The Tax Credit for Paid Leave for Employers: This credit may apply to eligible employers with fewer than 500 employees as well as some self-employed taxpayers. It is related to qualified leave wages taken by an employee for qualified sick and family leave from April 1 through September 30, 2021. It may lead to refundable tax credits that an Employer may be able to take on their business tax return. Check out the FAQs here: https://www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-for-leave-after-march-31-2021.
2. The Child and Dependent Care Tax Credits: This credit allows "for a percentage of work-related expenses"(1) incurred by a taxpayer for "the care of a qualifying persons to enable the taxpayer to work or look for work."(1) This credit was expanded under the ARP. If you think you may qualify for this credit, I encourage you to take the time to read what the IRS has put forth here in their FAQs: https://www.irs.gov/newsroom/child-and-dependent-care-tax-credit-faqs.
3. Advanced Child Tax Credit Payments: This is not necessarily an FAQ, but it is great information on the upcoming advanced tax credit payments you may receive from July to December 2021. Remember this is exactly what is says it is: an advance on part of your child tax credit you may be eligible for. You may have received by now a letter explaining the advanced payments as well as the ability to opt out of them. Even if you take the credit for July through December 2021, you may also still get some credit when you file your 2021 tax return. As an eligible family if you have not already filed either your 2019 or 2020 tax return, please try to get them in as soon as possible. The IRS will be using either return year to determine if you are eligible and what you may receive as an advance payment. You can check out their news release here: https://www.irs.gov/newsroom/irs-sending-letters-to-more-than-36-million-families-who-may-qualify-for-monthly-child-tax-credits-payments-start-july-15 and you can also find information here https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021. This area is being updated often, so make sure you check back especially if you determine you do not want the advance tax payments. But I will caution you that if you choose to opt out, there is no guarantee you will get a full child tax credit by waiting until you file your 2021 tax return. Take the time to utilize the tools the IRS will be setting up to see if you are eligible, how much of an advance payment you may be receiving, if you choose to opt-out or to make any taxpayer information changes.
Remember you can always go to www.irs.gov and look under their news section for information related to the ARP and any other coronavirus tax implications.
I also recommend that you talk with a CPA or tax professional to see if you may be entitled to any of the tax credits noted above. It is a great time to tax plan before next tax season but try to have some grace for CPAs and tax professionals. We are also learning and waiting for IRS updates to see how these tax credits may affect your returns at the same time you are.
Samantha M. Besnoff, CPA has been in the accounting field for over twenty-five years and is known as Your Financial Maven. Check out her information here: www.yourfinancialmaven.com.