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IRS Letters for Stimulus Payments and Advance Payments of Child Tax Credit

By: Kevin Umberger, CPA, Senior Manager

With the 2021 tax return filing season upon us, the IRS has started sending out letters to ease the challenges many taxpayers and advisors will face related to the reconciliation of stimulus payments on 2021 tax return filing.

In response to the global pandemic, Congress passed several rounds of stimulus with the intention of providing financial support to individuals and families. Administratively, this has created several problems with the matching of payments received with the reconciliation of credits allowed on nearly everyone’s 2020 and 2021 tax returns. This has resulted in significant refund delays for many taxpayers who had an unintentional matching error. In these cases, the IRS is taking over six months to manually reconcile and then issue refunds. Some individuals who filed their 2020 tax return prior to the April 15 deadline still have not received their 2020 tax refunds.

IRS Letters 6475 and 6419

To combat delays and prevent the IRS from falling further behind, the IRS will send out Letters 6419 and 6475 in early 2022. Letter 6475 provides taxpayers with the amount of the third Economic Impact Payment (EIP-3) they received, and Letter 6419 provides the amount of the advance payment of their 2021 Child Tax Credit they should have received according to IRS records.

IRS Letter 6475

For those who received the EIP-3 in early 2021, over a year has passed and taxpayers must reconcile the exact amount received on their 2021 tax return, which is stated in Letter 6475.   If the reconciliation of EIP-3 result is favorable, the taxpayer will receive additional refundable credit, if the reconciliation is unfavorable to the taxpayer, the additional amount received is not required to be repaid. This process will be similar to the EIP-1 & EIP-2 that were reconciled on 2020 returns, however, Letter 6475 should provide added support to avoid unintended errors and refund delays.

IRS Letter 6419

Similarly, Letter 6419 addresses how much taxpayers received in advanced payments of their 2021 Child Tax Credits, and the number of qualifying children the calculation was based upon. These payments were estimated based on prior-year tax filing and utilized information such as the number of dependents and Adjusted Gross Income to determine the credit that individuals were due to receive. Reconciliation of this credit is extremely important since a taxpayer unfavorable difference could result in a repayment of the credit previously received. This circumstance is likely to occur for individuals whose income increased in 2021 to the point where some or all the benefits of these credits would be phased out.

Everyone’s situation is unique and will require careful reconciliation to determine the correct amount of credits to be claimed or possibly repaid on 2021 tax returns. Please reach out to your Blue & Co. advisor to discuss these items if you have questions or concerns. Also, we highly recommend that both Letters 6475 and 6419 be submitted directly to your tax advisors as critical components of 2021 tax filings.

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