On July 15, 2021, the IRS sent over $15 billion in Advance Child Tax Credit (ACTC) payments. The first set of advanced payments will benefit approximately 35 million families with an estimated 60 million children. Payments will be made each month during the last half of 2021. The payment amount is $300 per month for children under age 6 and $250 per month for children aged 6 through 17.
Treasury Secretary Janet Yellen stated, "For the first time in our nation's history, American working families are receiving monthly tax relief payments to help pay for essentials like doctor's visits, school supplies and groceries. This major middle-class tax relief and step in reducing child poverty is a remarkable economic victory for America - and also a moral one."
The American Rescue Plan increased the credit from $2,000 per child in 2020 to $3,600 for children under age 6 and $3,000 for children from ages 6 to 17. For the first time, half of the credit is also being sent in monthly payments. The balance of the credit will be available when individuals file a 2021 tax return early next year.
Projections show that ACTC payments will lift five million children out of poverty. This could cut America's child poverty in half.
The expanded payments this year will enable an additional 26 million children to benefit. If a couple has a combined income of $60,000 and two children under age 6, the Child Tax Credit will be $7,200. This family could receive six payments of $600 each month for the last half of this year. The remaining $3,600 would be a tax credit when they file their 2021 tax return.
For the July payouts to 35 million families, approximately 86% of the payments are by direct deposit and 14% are checks sent through the mail.
Many low-income families received ACTC payments because they signed up for Economic Impact Payments last year. While most of these individuals have lower incomes and do not file federal tax returns, an estimated 720,000 children will benefit from ACTC payments because their families signed up for Economic Impact Payments.
Other families used the Non-Filer Sign-up Tool on IRS.gov
. The IRS has published step-by-step guides in multiple languages about how to use this tool. The IRS also hosted educational events in 12 cities in early July. These events were targeted toward cities with large numbers of households who normally do not file federal income tax returns.
IRS Child Tax Credit Fact Sheet
In FS-2021-10, the Internal Revenue Service published a fact sheet on Child Tax Credit advance payments. This fact sheet is helpful for tax professionals, nonprofit staff and other individuals who are answering questions about potential payment recipients.
The fact sheet explains who qualifies for the payment and includes a useful section on the practical steps to sign up for the payments. If an individual has not received a July payment and signs up through the process, he or she can still receive half of the qualified payment amounts during the balance of this year.
The three steps involve using the Child Tax Credit Eligibility Assistant, registering with the Non-Filer Sign-up Tool and checking the status of payments with the Child Tax Credit Updates Portal.
- Child Tax Credit Eligibility Assistant The Assistant is available in both English and Spanish. It does not require personal information and is not a registration tool. The Assistant is merely helpful for determining if you are eligible. If an individual is eligible, then it is beneficial to proceed to the next step.
- Non-Filer Sign-up Tool Even if an individual does not normally file a federal tax return, eligible parents should use the Non-Filer Sign-up Tool. This tool enables the user to enter current bank information and the ages and other information for their qualified children. Another option is to use the online Free File system to file a tax return for 2019 or 2020. The Free File system may also enable qualification for payment of the Recovery Rebate Credit. The IRS encourages individuals to file even if they have missed the July 15 payment. The remaining four or five payments for this year will be adjusted upward.
- Child Tax Credit Update Portal After an individual has filed a tax return or registered on IRS.gov, he or she may want to check on monthly ACTC payments. The Child Tax Credit Update Portal allows you to change your bank account information, set up a direct deposit or opt out of receiving the payments.
An estimated one million families have decided to opt out of ACTC payments. The families who choose to opt out may have several reasons. The primary reason is that they do not qualify for the credit. The individuals may have high income, the child may be a dependent on the tax return of another family member or the individual may be overseas during the majority of 2021. All of these are reasons why the individual may not qualify for the Child Tax Credit and would like to unenroll.
Advisors should share the major 2021 CTC changes with clients. The prior $2,000 tax credit is now increased to $3,600 for children under age 6 and $3,000 for children between ages 6 and 17. The credit is phased out at a rate of $50 per every $1,000 of modified adjusted gross income (MAGI) for higher-income individuals. The phaseout begins at $75,000 for single filers and $150,000 for married couples filing a joint return.
The IRS urges professional advisors, nonprofits and community groups to communicate this ACTC information with individuals. Nonprofits may provide an excellent service by enabling language-challenged or low-income individuals to obtain their advance payments.
Tax Pro Identity Theft Protection Campaign
In IR-2021-152, the IRS Security Summit announced a summer campaign to increase awareness of the latest identity theft strategies targeting tax professionals.
Tax professionals reported 222 data thefts during the first half of 2021. This was up from reports of 211 thefts in 2020 and 124 in 2019. A data theft that impacts a tax professional could have harmful results for hundreds of his or her clients.
IRS Commissioner Chuck Rettig stated, "The Security Summit continues to work cooperatively to battle tax-related identity theft, but we need the help of tax professionals in this effort. We continue to see instances where tax professionals did not take simple steps that could have protected their clients and their business. Tax professionals must take a shot at basic security steps to protect against relentless efforts by identity thieves to steal data and tax information."
Criminal syndicates that attack tax professionals are becoming steadily more tech-savvy and tax-savvy. They attempt to gain access to the servers and computer systems of tax professionals. The stolen client data is used to file fraudulent tax returns. These returns are generally more difficult for the IRS to identify because the thieves are using financial information from actual individuals.
There are five specific areas for tax professionals to review. Understanding the dangers and taking basic steps will reduce the risk of stolen client data.
- Multi-Factor Authentication Nearly all tax professionals use software from a large provider. All of these software programs from large providers offer two-factor authentication. The two-factor authentication is an important addition to the use of antivirus software, strong passwords and virtual private networks. It is more difficult for fraudsters to hack into a network if it requires two-factor authentication.
- Identity Protection PINs All taxpayers can now obtain an Identity Protection (IP) PIN. This is a six-digit number that is known to the taxpayer and the IRS. The taxpayer may file IRS Form 15227 and contact the IRS by phone. There is a "Get IP PIN" tool on IRS.gov that will assist clients in this process.
- Unemployment Compensation Fraud In 2020, many identity thieves stole identities from tax professionals and used these identities to file for expanded unemployment compensation benefits. States then issued Forms 1099-G to surprised taxpayers who had not received any benefits. Some taxpayers have received many Forms 1099-G because thieves use the stolen information to file multiple benefit claims.
- Spear Phishing Scams A successful strategy for many identity thieves is spear phishing. The thief creates personal emails that are similar to those from a client. Many tax professionals have fallen for these spear phishing scams. After the identity thief builds contact and relationship with the tax professional through three to ten emails, he or she includes an attachment. If the tax professional clicks on the link or downloads the attachment, it downloads malware that gives the thief access to client records.
- Signs of Identity Theft Many tax professionals initially failed to recognize that a theft had occurred. It was only when many clients started receiving IRS letters questioning their returns that the professionals discovered the breach. Professionals should be on the lookout for any actions by clients that indicate an excessive number of returns have been filed.
Professionals who seek added information on security may desire to view an educational webinar. The American Coalition for Taxpayer Rights will conduct a webinar on July 28 at 2:00 PM ET with the title, "Cybersecurity for Tax Professionals Advanced Session."
Applicable Federal Rate of 1.2% for August Rev. Rul. 2021-14; 2021-31 IRB 1 (15 July 2021)
The IRS has announced the Applicable Federal Rate (AFR) for August of 2021. The AFR under Section 7520 for the month of August is 1.2%. The rates for July of 1.2% or June of 1.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.