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Advance CTC

Technical topics regarding tax preparation.
#1
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I am working on a client eblast and am struggling trying to wrap my head around one thing.

IRC Sec 7527A reads:

7527A(b)(1)In General

Except as otherwise provided in this subsection, the term "annual advance amount" means, with respect to any taxpayer for any calendar year, the amount (if any) which is estimated by the Secretary as being equal to 50 percent of the amount which would be treated as allowed under subpart C of part IV of subchapter A of chapter 1 by reason of section 24(i)(1) for the taxpayer's taxable year beginning in such calendar year if—
7527A(b)(1)(A)

The status of the taxpayer as a taxpayer described in section 24(i)(1) is determined with respect to the reference taxable year...


Sec 24(i)(1) reads:

Refundable Credit

If the taxpayer (in the case of a joint return, either spouse) has a principal place of abode in the United States (determined as provided in section 32) for more than one-half of the taxable year or is a bona fide resident of Puerto Rico (within the meaning of section 937(a)) for such taxable year—


Am I reading correctly that US citizens who have their abode outside the US and Puerto Rico will not be eligible for and therefore will (generally) not receive advance payments of the 2021 CTC?
 

#2
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are you sending an e-blast to folks living outside the US / in PR?
 

#3
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Some of my clients are expats who live outside the US and PR. Some of them have qualifying children who otherwise qualify for the CTC pre-ARPA.

I'm not going to send them an eblast if they don't qualify for the advance payments. Hence the question in the OP.
 

#4
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I'm pretty much settled that my reading is correct now.

Expats (those who live outside the US and Puerto Rico), are ineligible for both 100% refundable treatment under IRC Sec 24(i)(1) and generally will not receive advance CTC payments under IRC Sec 7527A.

I say generally because the IRS is supposed to determine residency status, and it's currently unclear how they're going to do that:

7527A(b)(4)Determination of Status

If information contained in the taxpayer's return of tax for the reference taxable year does not establish the status of the taxpayer as being described in section 24(i)(1), the Secretary shall, for purposes of paragraph (1)(A), determine such status based on information known to the Secretary.


I imagine the address listed on the 1040 might be a good start...although not reliable as many expats (in my experience) use a US based address for their US tax returns...either that of a relative or a virtual mailbox. Presence of a 2555 in the return might be better, however not all expats claim the FEIE.
 

#5
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https://www.irs.gov/credits-deductions/ ... ts-in-2021

IRS website was updated today:

To qualify for advance Child Tax Credit payments, you — and your spouse, if you filed a joint return — must have:

....

A main home in the United States for more than half the year (the 50 states and the District of Columbia) or file a joint return with a spouse who has a main home in the United States for more than half the year; and

....
 

#6
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Thank you for the update
 

#7
s054  
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A bigger question is if and when the IRS sends payments to expats who wrote a US address on their tax return, would the safe harbor of the new child tax credit allow them to keep up to $2000 per child.
 

#8
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What safe harbor are you referring to?

Technically no one should receive more than $1,800 per child as advance payments. That is the max for a child under age 6 as of 12/31/2021 and mAGI below threshold. The payments are only 50% of the projected credit.

The remaining 50% will be paid out on the return via tax credit.
 

#9
s054  
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Safe harbor of the expanded child tax credit:

Text of the Safe Harbor provision:
“(2) EXCESS ADVANCE PAYMENTS.—
“(A) IN GENERAL.—If the aggregate amount of payments under section 7527A to the taxpayer during the taxable year exceeds the amount of the credit allowed under this section to such taxpayer for such taxable year (determined without regard to paragraph (1)), the tax imposed by this chapter for such taxable year shall be increased by the amount of such excess. Any failure to so increase the tax shall be treated as arising out of a mathematical or clerical error and assessed according to section 6213(b)(1).
“(B) SAFE HARBOR BASED ON MODIFIED ADJUSTED GROSS INCOME.—
“(i) IN GENERAL.—In the case of a taxpayer whose modified adjusted gross income (as defined in subsection (b)) for the taxable year does not exceed 200 percent of the applicable income threshold, the amount of the increase determined under subparagraph (A) with respect to such taxpayer for such taxable year shall be reduced (but not below zero) by the safe harbor amount.
“(ii) PHASE OUT OF SAFE HARBOR AMOUNT.—In the case of a taxpayer whose modified adjusted gross income (as defined in subsection (b)) for the taxable year exceeds the applicable income threshold, the safe harbor amount otherwise in effect under clause (i) shall be reduced by the amount which bears the same ratio to such amount as such excess bears to the applicable income threshold.
“(iii) APPLICABLE INCOME THRESHOLD. —For purposes of this subparagraph, the term ‘applicable income threshold’ means—
“(I) $60,000 in the case of a joint return or surviving spouse (as defined in section 2(a)),
“(II) $50,000 in the case of a head of household, and
“(III) $40,000 in any other case.
“(iv) SAFE HARBOR AMOUNT. —For purposes of this subparagraph, the term ‘safe harbor amount’ means, with respect to any taxable year, the product of—
“(I) $2,000, multiplied by
“(II) the excess (if any) of the number of qualified children taken into account in determining the annual advance amount with respect to the taxpayer under section 7527A with respect to months beginning in such taxable year, over the number of qualified children taken into account in determining the credit allowed under this section for such taxable year.”

The safe harbor was made to avoid the situation of low income parents having to pay back a payment already spent, thereby creating a bigger financial burden to them than having not received any payment at all.

The law allows taxpayers to keep these payments if the IRS made them in error, in the case of a change in "the number of qualifying children". The IRS probably had in mind in case of the death of a child, or transfer of custody. However, possibly the IRS error of sending payments for expat children would constitute a "change in the number of qualified children" - the IRS being notified when filing the 2021 return of their being unqualified could be looked at as a change in status.

Many of my expat clients have already gotten notices from the IRS at their US mailing address that they "may" be eligible for the new CTC, and will receive payments automatically.

You're right that the max of the advance monthly payments would be $1800, the rest would have to be claimed on the 2021 return. So in the case of expats, possibly $1800 would not have to be returned.

What do you think?
 

#10
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s054 wrote:However, possibly the IRS error of sending payments for expat children would constitute a "change in the number of qualified children" - the IRS being notified when filing the 2021 return of their being unqualified could be looked at as a change in status.


I don't read it like that. I would agree that's there to prevent any undue hardship due to death of a child, or IRS error. I don't think it's applicable to the expat dynamic. Merely being an expat doesn't modify the number of qualifying children under either Sec 24 or Sec 7527A. Expats are just ineligible for advance payments due to their residence.

Expats are affected by two high-level things here I believe: (1) the 2021 CTC is not 100% refundable for them... IRC Sec 24(i)(1) and (2) they are generally not eligible for advance payments of the CTC...Sec 7527A(b)(1).

If an expat receives an advance CTC, it's not the end of the world, and I don't believe one needs to proactively send it back to the IRS. We would just reduce the amount of the credit under the provisions of Sec 24(j)(1) and perhaps increase the tax due under 24(j)(2).
 

#11
Joan TB  
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Has anyone else noticed that their tax software is calculating the CTC for 2021 still at $2,000? Or is it just Lacerte? Or did I miss a checkbox somehwere? And nothing about adjusting 1040ES pmts for the Advance CTC pmt that is coming.

Should we just override the credit amount to include the addl $1,000 (or $1,600) per child?

I don't see anything in the 1040ES instructions on IRS.gov about this change, either. Is that why the software isn't changed yet?

EDITED: I found a check box on screen 7.1, but I don't see anything to adjust for advance payments received (or not).
 

#12
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I don't use Lacerte, but UltraTax puts the new CTC down with the other refundable credits rather than with the non-refundable credits same as it would for ACTC. That is also where the child care credit is for the 2021 tax projections.
 

#13
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Does anyone have expat clients who have received July advance ctc? How should expat deal with it?
1. return it
2. keep it and wait till the time 2021 tax return is prepared to reconcile the CTC number on the return?

Also if expats want to opt out of advance CTC, is there a IRS link to do that?

Thank you!
 

#14
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taxp2345 wrote:Does anyone have expat clients who have received July advance ctc? How should expat deal with it?
1. return it
2. keep it and wait till the time 2021 tax return is prepared to reconcile the CTC number on the return?

Also if expats want to opt out of advance CTC, is there a IRS link to do that?

Thank you!



Just found the IRS protal for unenrolling from the advance payment.
https://www.irs.gov/credits-deductions/ ... ate-portal

If anyone can help with how to deal with the advance ctc already received by expat, that will be really appreciated!
 

#15
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taxp2345 wrote:If anyone can help with how to deal with the advance ctc already received by expat, that will be really appreciated!


There is no official guidance to my knowledge. I have already mentioned in post #10 how I plan to handle it absent official guidance.
 

#16
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Thanks!
 


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