Biden’s Child Tax Credit Reportedly Comes With Complications

Biden's Child Tax Credit Reportedly Comes With Complications

( – Democratic lawmakers pushed President Joe Biden’s American Rescue Plan (ARP) through Congress in early 2021. The House passed the measure 219 to 212 along partisan lines on February 27, 2021, and the Senate approved it on March 6, 2021. Five days later, Biden signed the $1.9 trillion stimulus package into law.

The ARP included changes to the long-standing Child Tax Credit (CTC) plan, like increasing the amount of money from $2,000 to $3,600 for children under 6 and $3,000 for children over 6. The stimulus package also raised the age limit from 16 to 17.

Additionally, the ARP created monthly Advance Child Tax Credit (AdvCTC) payments for eligible families based on their 2019 or 2020 federal tax returns. Previously, parents claimed the Child Tax Credit on their income taxes, offsetting their annual earnings. They didn’t receive monthly payments.

As it turns out, new reports suggest the changes came with some complications for tax filers and the IRS in 2022.

The National Taxpayer Advocate Weighs In

In early 2022, the National Taxpayer Advocate Service (TAS) submitted its Annual Report to Congress. For those unfamiliar with the service, the TAS is an independent organization within the IRS that advocates for American taxpayers. In short, it operates to ensure the IRS treats taxpayers fairly and individuals know and understand their rights.

This year’s report discussed 10 serious problems confronting taxpayers filing their taxes in 2022 for the previous year’s earnings. The top item on the list involved anticipated processing and refund delays. According to the TAS, millions of taxpayers experienced significant delays with their 2021 tax returns.

The IRS experienced difficulties processing returns, issuing refunds, and addressing correspondence from tax filers and their agents/tax attorneys. Biden’s creation of the AdvCTC created severe complications for IRS agents processing those returns and sending out refund checks.

As a result, the IRS had to carry over more than 35 million unprocessed tax returns from 2021 into the new year in January 2022. The TAS predicts that backlog will delay the processing of new returns.

Additionally, taxpayers filing their 2021 taxes will need to reconcile their monthly payments in their tax returns with the amounts for which they qualify. Likewise, taxpayers who didn’t receive some or all of the year’s third round of stimulus payments will also need to claim those credits.

According to the report, the creation of these additional filing requirements will likely lead to further delays in processing 2021 returns, particularly if taxpayers don’t properly reconcile their AdvCTC payments.

Potential Bad News From the IRS

On March 8, 2022, the IRS released a list of frequently asked questions (FAQs) regarding the CTC and AdvCTC. Question H3 discussed whether taxpayers would have to repay AdvCTC payments if they exceeded the CTC amount listed on the 2021 tax return.

The FAQ responded that individuals qualifying for “repayment protection” could be excused from having to repay any excess AdvCTC payments. However, filers not qualifying for protection would have to list any overpayment on their 2021 tax return as income. As a result, the amount of their tax refunds would lower, or when applicable, their total tax due for 2020 would increase.

Millions of Americans benefited from the monthly AdvCTC payments. However, some people may regret it after filing their 2021 tax returns.

What are your thoughts regarding this revelation?

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