“A lot of people forgot that they received it, or forget the exact amount, and think they can use an estimate. That’s not the case,” said Amy Stephens, shareholder at Hammerman, Graf, Hughes & Company in Dayton.
In January, the IRS began issuing Letter 6475, titled “Your Third Economic Impact Payment,” to stimulus recipients to determine if taxpayers are eligible to receive that money as part of their 2021 tax returns. The stimulus payments are not taxable as income.
If a taxpayer did not receive their stimulus, they are entitled to, and they should claim the “recovery rebate credit” on their 2021 tax returns when they file In the coming weeks.
Reporting the correct amount of stimulus money a family received is vital to ensuring that return is processed on time, said Josh Campbell, tax accountant with Bradstreet and Company.
“It’s of the utmost importance,” he said. We’ve had a few instances where it was misreported. Some of those refunds are taking a bit longer.”
Families that have a new baby or another new dependent in the last few years should also double check their numbers, Campbell added.
“Some people got their EIP Three (the third stimulus payment) in mid-March,” he said. “For some of those people, if they filed that return and had a new dependent that arrived in 2020, but hadn’t gotten their return filed before stimulus checks went out, they may have gotten another stimulus payment later in the year.”
The letter only applies to the third round of Economic Impact Payments, issued in March through December of 2021. If taxpayers didn’t receive the first two stimulus payments, the only way to get those is to file an amended return on their 2020 taxes, with the recovery rebate credit included.
For those who don’t have a copy of Letter 6475, they can also check their status on IRS.gov. The IRS has been using verification software by ID.me, including facial recognition, to verify users’ identities, but will be “moving away” from the facial recognition element after backlash, the agency announced in February.
Aside from privacy concerns, the facial recognition software just “didn’t work very well,” Campbell said.
“The only other way, and not most ideal, is looking at bank statements, ensuring you don’t have those deposits. In lieu of other options, that’s the best thing to do,” he added.
Child tax credits
Many taxpayers with children received half of their child tax credit for dependents in the second half of 2021 through the American Rescue Plan Act. For 2021, the child tax credit is fully refundable, meaning that instead of just reducing the amount of tax you owe, it can also result in a refund from the government.
Married couples will receive two letters, each listing half of the advance child tax credit payments received. Historically, the refundable portion is limited based on income, but it is fully refundable for 2021 only.
“Clients that can take advantage of the Earned Income Credit and Child Tax Credits are seeing higher returns. Everyone else is seeing lower returns due to changes in tax laws,” said Emerald Sparks, who runs a namesake bookkeeping and tax preparation company with a focus on women entrepreneurs.
There are many other expanded credits that taxpayers can take advantage of this year, including education credits, earned income credits, credits for childcare, and charitable contributions you can take even if you’re not itemizing.
The IRS is experiencing a massive backlog, mostly from paper returns. The IRS began accepting 2021 digital returns at the end of January, which the agency has previously said is the best way to file. Stephens said the IRS is understaffed, and still dealing with a massive backlog of paper mail from 2020.
“The IRS was shut down for so long during the pandemic, they sent everybody to remote work, it became this snowball,” Stephens said. “There’s millions of pieces of mail they haven’t processed. They had to stop sending out collection notices, because the response to their initial notice may be in that mail.”
For those who file electronically, some people have experienced delays because of claiming certain credits. But other refunds are hitting accounts as early as a week, Campbell said.
“If you haven’t filed, please file before April 18,” said Sparks. “The IRS is still experiencing processing delays, but the sooner you file, the sooner they can pay out your refund.”
Those who already filed but haven’t yet received their refund can check their status on the IRS website.
“Do not harass your tax preparer, they have no control over the IRS,” Sparks said.
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