By Jennifer F. Flinchum, CPA, CFP®, Partner
Streamline Your 2021 Tax Return Filing by Verifying Stimulus Payments
I don’t think it will be a shock to anyone that the IRS is still a bit behind and in COVID recovery mode. In addition to COVID changing how and when IRS personnel can work in the office and process the mail (think of all of the paper filed returns and related tax payments), the various tax law changes and economic stimulus payments have caused much delay in processing as the IRS adjusts and reprograms their systems. Layer on top of this, taxpayers receiving varying Economic Impact Payments (EIP) and/or Advance Child Tax Credit (ACTC) payments and, perhaps, not keeping track of when or how much received and you have a recipe for further delay.
Economic Impact Payments Reporting
One of the biggest causes of processing delays of 2020 tax returns was the misreporting of EIP. If the amount of EIP received in 2020 was misreported on the taxpayer’s Form 1040, then the calculation of the Recovery Rebate Credit was incorrect.
EIP 1 and 2
As a quick reminder, EIP 1 and EIP 2 were based on prior year tax data (2019) and were paid in two installments (April 2020 and December 2020/ January 2021). When taxpayers filed their 2020 return, they re-calculated the amount due based on 2020 income and, if more was due, the taxpayer was paid a true up amount as a Recovery Rebate Credit. The key to this calculation was to properly report the amount already received for EIP 1 and EIP2. If these amounts were misreported, it led to long delays in the processing of the 2020 return as the IRS was generally having to manually review and re-calculate the return. While the IRS sent a letter at the time each EIP was paid, there was no summary letter sent to taxpayers to summarize what was received in total for tax year 2020.
Reminder that EIP 3 was received in March 2021 and/or throughout 2021 as 2020 returns were processed and will need to be reported/ reconciled on your 2021 return.
In an effort minimize 2021 processing delays and increase efficiency, the IRS will issue a letter in late January 2022 reporting the total amount of the EIP 3 received.
Advance Child Tax Credit Reconciliation
Tax year 2021 will be further complicated by the ACTC payments received between July and December 2021. The IRS issued these payments to taxpayers based on their 2020 income and filing status. If there are material differences in the taxpayer’s 2021 income (and potentially filing status) these credits/payments have to be reconciled on the taxpayers 2021 Form 1040. The taxpayer could find they are due additional credits or that they received too much for their ACTC and now owe the IRS. As with the EIP summary confirmation, the IRS will issue a letter in January 2022 reporting the total amount of the Advance Child Tax Credit payment received in 2021.
Taxpayer Verification Resource: IRS On-Line Portal
The IRS offers an on-line account you can use for stimulus payment verification and more. If you have not received either of the above mentioned letters, we encourage you to use the IRS’ on-line portal.
This portal can also be used to securely see important information, follow up on balances due or track other tax notices. Taxpayers can now also manage their communication preferences to go paperless for certain notices from the IRS, or to receive email notifications when the IRS sends a new digital notice.
When setting up the IRS’ on-line portal, you will need to verity your identity using a photo of an identity document such as a driver’s license, state ID, or passport. You’ll also need to take a selfie with a smartphone or a computer with a webcam. There is help available if you are not able to complete the identity verification.
Keiter requests that our clients provide verification of any stimulus payments received during 2021(EIP3 and/or Advance Child Tax Credit payments) so that your return will be accurate and will (hopefully) be timely and efficiently processed.
Questions? Contact your Keiter Opportunity Advisor or Email | Call: 804.747.0000
About the Author
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.