FAQs About the Advance Child Tax Credit

FAQs About the Advance Child Tax Credit

We’re still getting questions from some folks about the Advance Child Tax Credit that they are receiving. Read below for some answers to common questions we’ve received.

Q: What is it?

A: The Advance Child Tax Credit provides you with an ADVANCE payment of the child tax credit you can claim on your 2021 tax return (filed in early 2022). It is not extra money provided by the government, but rather just an advance of the amount you would typically receive as part of your refund next year.

Q: How is this different than the previous Child Tax Credit?

A: Previously, you had to wait until you filed your tax return to receive the credit. This year, as part of COVID-19 tax law changes, you may receive the credit in monthly payments from July through December. What’s more, the amount has been increased for 2021 only to $3,600 for children under age 6 and to $3,000 for children between 6 and 17.

Q: Who qualifies?

A: You may receive these payments if your dependent child, stepchild, foster child, sibling or other dependent relative does not turn 18 before January 1, 2022, and also:

  • Does not provide more than half of his or her own support during 2021.
  • Lives with you for more than half of tax year 2021.
  • Is a U.S. citizen, U.S. national, or U.S. resident alien.

Q: Can I stop the payments?

A: Yes. If you don’t want to receive the monthly Advance Child Tax Credit payments because you would rather claim the full credit when you file your 2021 tax return, or because you will not be eligible for the credit, you can unenroll through the Child Tax Credit Update Portal. (Note: If you are married and file jointly, BOTH you and your spouse must unenroll individually.)

Q: Will receiving the Advance Child Tax Credit payments affect my other government benefits?

A: No. These payments cannot be counted as income to determine if you are eligible for benefits or assistance, or how much you can receive under any federal, state or local program.

Q: Are the Advance Child Tax Credit payments taxable?

A: No. Because these payments are an advance on your 2021 child tax credit, they are not income and will not be reported as income on your 2021 tax return. However, the total amount of payments you receive is based on the IRS’s estimate of your 2021 child tax credit (generally using information from your previous tax returns). If you receive more in payment than you are eligible to claim on your tax return, you may have to repay the excess amount.

More Questions? Ask Us!

If you have additional questions about the Advance Child Tax Credit, don’t hesitate to contact us. We’ll be happy to help you work through the details. You may also check the IRS’s website for more details.

Premier CPA Services 10 year anniversary logo

May 31 was our 10-Year Anniversary! To celebrate, we will be offering some great giveaways to our clients and Facebook friends. Be sure to follow us and stay tuned!

IRS Issues ERC Safe Harbor

The IRS issued a safe harbor allowing employers to exclude certain amounts from their gross receipts solely for determining eligibility for the Employee Retention Credit (ERC). As an employer, you can elect to apply the safe harbor by excluding these amounts to determine whether you are an eligible employer for a calendar. These amounts include:

  • The amount of the forgiveness of a Paycheck Protection Program (PPP) Loan;
  • Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act; and
  • Restaurant Revitalization Grants under the American Rescue Plan Act of 2021.

You are not required to apply this safe harbor, but may do so on your employment tax return (Form 941 or Form 941-X). If you have questions about the ERC, just give us a call at 706-632-7850.

Social Security 2020 Annual Report

Last year, Social Security paid benefits of $1.096 trillion to approximately 65 million beneficiaries. Meanwhile, an estimated 175 million people paid into Social Security through payroll taxes.

However, the Social Security Administration projects its total annual costs in 2021 will exceed its total annual income for the first time since 1982. And if Congress does not act soon, trust fund reserves will be depleted:

  • Old-Age and Survivors Insurance (OASI) will be depleted in 2033, with 76% of benefits payable at that time.
  • Disability Insurance (DI) Trust Fund will be depleted in 2057, with 91% of benefits still payable.

Video Tax Tip

The IRS Small Business Tax Workshop is a series of online training videos covering tax topics for new and established small business owners.

Second Round of PPP Loan Funding Now Open

Second Round of PPP Loan Funding Now Open

T/he SBA recently reopened the Paycheck Protection Program for both “First Draw” and “Second Draw” PPP loans for eligible small businesses. This second go-round is intended to make PPP loans more flexible, helpful and accessible, especially to hard-hit restaurants. Here’s how:

2nd PPP loan available Businesses that got a PPP loan the first time can apply for a second loan, as long as they’re not a public company, don’t employ more than 300 people, have used or will fully use their first PPP loan for authorized uses, and can show at least a 25% drop in gross receipts in the first, second or third quarters of 2020 compared to the same quarters in 2019.

Targeted funds for vulnerable businesses — $15 billion-$25 billion is earmarked for community development financial institutions that typically lend to minority-owned businesses in underserved communities, and for businesses with fewer than 10 employees, as well as those in low-income areas.

Restaurants get more — Restaurants and lodging businesses can apply for loans equal to 3.5 times their monthly payrolls. Other eligible businesses are limited to 2.5 times their average monthly payroll expenses. All PPP loans are capped at $2 million (down from $10 million previously).

Greater use flexibility — To be fully forgiven, at least 60% of the loan funds must be used for payroll expenses. The remaining 40% may be used to cover a now-broader array of business expenses (beyond mortgage interest, rent and utility payments), including personal protective equipment and other COVID needs, certain operations, property damage and supplier costs.

Simpler forgiveness process — Businesses that borrow $150,000 or less will simply need to submit a one-page certification, which includes the number of employees the business retained as a result of the loan and an estimate of how much of the loan was spent on payroll.

Better tax breaks — PPP loans will continue to be tax-free for recipients if used for authorized purposes. But thanks to the new law, payroll and operating expenses will still be deductible.

For more help determining your PPP loan amount and specifics, give us a call today.

Don’t Miss Out on the COVID Tax Credit for Employers

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (enacted Dec. 27, 2020), made a number of changes to Employee Retention Credits (ERC) previously available under the CARES Act. The new law makes it easier for businesses that choose to keep their employees on the payroll despite COVID-19 challenges.

Benefits/updates include:

  • The ERC has been modified and extended through June 30, 2021.
  • Eligible employers can claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees from January 1-June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021 (thus maximum ERC is $7,000 per employee per quarter, total of $14,000 in 2021).
  • Employers can access the ERC for the 1st and 2nd quarters of 2021 prior to filing their employment tax returns by reducing employment tax deposits. This must be reported on Form 941.
  • Small employers may request advance payment of the credit on Form 7200, Advance of Employer Credits Due to Covid-19. Keep in mind that Form 7200 is used to request the advance payment of employer credit, not claim it.
  • Employers are eligible if they operate a trade or business January 1-June 30, 2021, and experience either:
    – A full or partial suspension of their trade or business due to governmental orders limiting commerce, travel or group meetings due to COVID-19, or
    – A decline in gross receipts in a quarter in 2021 that are less than 80% of the gross receipts in the same quarter in 2019 (or 50% less in the same 2020 quarter).
  • Paycheck Protection Program (PPP) loan recipients can claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan.

If you need help determining your business’s eligibility for Employee Retention Credits or filing Form 941, please give us a call. We’re here to help!

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Download Our Tax Preparation Checklist

We put together two checklists to help you pull together your 2020 tax files. If you haven’t yet, you can download them here:

If you prefer, we can email them to you (just call or email Amber at amber@premiercpaservices.com to request your copy).

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Key Filing Dates!

TODAY! Feb. 1: W-2s and 1099s due to recipients

Feb. 12: IRS begins accepting and processing 2020 tax returns

Feb. 22: Projected date for “Where’s My Refund” tool to open

Apr. 15: Tax filing deadline

Oct. 15: Tax extension filing deadline

Money Brief: Tax Filing Season Begins Feb. 12

The IRS will begin accepting and processing 2020 tax year returns no sooner than February 12, 2021. The February 12 start date allows the IRS time for programming and testing following the recent tax law changes. The IRS urges taxpayers to file electronically with direct deposit to speed processing and refunds — nine out of 10 taxpayers should receive their refund within 21 days of when they file electronically with direct deposit (assuming no issues).

We’re now accepting tax returns. If you’ve pulled together all your files, you can drop them off at our office either in person or in the dropbox outside.