June 2021

TaxBrief Keeping you informed June 2021
Check W-4 withholdings
With so many changes recently, it’s a good idea to
check how much federal income tax you’re having
withheld from each paycheck. Too little can lead to
a tax bill. Too much means smaller paychecks and
a larger refund, but you can’t use the money until
you file and receive your refund.
Check your withholding if you have any:
• Lifestyle changes such as marriage, divorce,
birth of a child or retirement
• Change in wages because you or your spouse
started or stopped working
• Taxable income not subject to withholding such
as self-employment income, IRA distributions
or capital gains
• Tax credits such as the child tax credit, earned
income credit (EIC), dependent care credit or an
education credit
Be sure to notify me, your tax preparer, of any
of these changes. Together, we can perform a
“paycheck checkup” to ensure you have the right
amount of tax withheld from your paycheck.
Amended returns
Certain retroactive tax law changes occurred after
the 2021 tax season began. If you filed your 2020
tax return before the American Rescue Plan (ARP)
was enacted on March 11, 2021, some changes will
be adjusted automatically by the IRS while others
require an amended tax return.
The IRS is making the following corrections
automatically and issuing the resulting refunds,
so an amended return should not be filed.
• Excluding $10,200 of 2020 unemployment compensation
from income if your modified adjusted
gross income (MAGI) is less than $150,000
Rita Bhayani CPA, CMA
Email: info@ritacpa.net
Phone: (925) 523-6662
3983 Fairlands Dr
Pleasanton, CA-94588
• Refunding the excess advance premium tax
credit repaid with your 2020 return
• Adjusting the 2020 recovery rebate credit
(RRC) if an amount was entered on your 2020
return but it’s incorrect
Alternatively, you should file an amended return
if you:
• Received tax forms reporting additional income
after filing your 2020 return
• Failed to claim the unemployment
compensation exclusion and become eligible
for certain income-based credits not claimed
on the original return
• Failed to deduct business expenses because you
received Paycheck Protection Program (PPP)
loans that were forgiven
• Are eligible for the 2020 RRC but didn’t enter
any amount on your 2020 return
IRS notices/letters
The IRS sends notices and letters for various reasons.
First and foremost, don’t panic if you receive
one. Read it carefully. Sometimes it’s just valuable
information to keep with your tax records. Other
times, the notice might say the IRS needs more
information or changed something on your tax
return, especially if you filed your tax return before
March 11, 2021 (see prior article). If you agree with
the change, there’s no need to contact the IRS, but
you must follow the instructions in the notice if you
have a balance due. On the other hand, if you disagree
with the change, you must respond as directed
in the notice. Contact me if you receive a notice,
and we can work together on how to respond.
Third economic impact payment
The third ($1,400) economic impact payment (EIP)
is an advance payment of the 2021 RRC, which
is refundable even if you don’t owe any tax. This
payment is based on your 2019 return if your 2020
return wasn’t filed when the payment was issued.
However, if your payment was less than the full
amount based on your 2019 return, and you qualify
for a larger amount based on your 2020 return,
the IRS will issue a “plus-up payment” after they
process your 2020 return for the additional amount.
If you don’t qualify for the third EIP based on
your 2019 or 2020 returns, you may be eligible to
claim the RRC on your 2021 return based on your
2021 income and dependents. The IRS is issuing
Notice 1444-C to people who received the third
EIP; it provides the amount of the payment. You
don’t need to do anything with this notice, other
than keep it with your 2021 tax records so we can
determine if you’re eligible for the credit on your
2021 return.
Advance child tax credit payments
For 2021 only, the child tax credit (CTC) is fully
refundable and increases from $2,000 to $3,600
for each child under age 6 and $3,000 for each
child age 6 to 17 at the end of 2021. However,
the increased credit amount is reduced (phased
out), when income exceeds $150,000 for married
taxpayers filing a joint return and qualifying
widow(er)s, $112,500 for heads of household and
$75,000 for single taxpayers.
In addition, advance payments of the 2021 CTC
will be made monthly from July through December
2021. Generally, they will be 50% of your estimated
2021 CTC based on your 2020 return (2019
return if your 2020 return hasn’t been filed). You
may receive up to $300 per month for each child
under age 6 and up to $250 per month for each
child age 6 to 17. Keep in mind, if you receive
advance payments in excess of the CTC allowed
on your 2021 return, you may have to repay some
or all of it.
The IRS is sending Letters 6416 and 6416-A
to taxpayers who may be eligible for advance
CTC payments. You’ll also receive a second,
personalized letter listing an estimate of your
monthly payment. If you want to receive these
payments, you don’t need to take any action. On
the other hand, you must unenroll or opt out using
the online Child Tax Credit Update Portal if you
don’t want to receive them. The portal will also
allow you to check on the status of your payments
and make updates to your information to ensure
you are receiving the right amount as quickly as
possible. If you’re unsure whether you should opt
out based on your circumstances, or need help
opting out, get in touch with me.
Repayment of distributions
related to coronavirus
If you received a coronavirus-related distribution in
2020 that is eligible for tax-free rollover treatment
or made on account of hardship, you may choose
to repay any portion of it within three years of
receiving the distribution. Repayments are treated
as trustee-to-trustee transfers, meaning they aren’t
included in income and aren’t subject to any
contribution or rollover limits.
If you make a repayment before the due date
(including extensions) of your 2020 return, the
repayment reduces the amount included in income
on your 2020 return. Alternatively, if you make
a repayment after filing your 2020 return and the
income was spread over three years, the repayment
generally reduces the amount included in income
on your 2021 return. However, you may file an
amended return for 2020 to reduce your income
by the repayment if you:
• Elected to include the entire distribution in
income in 2020, or
• Spread the income over three years, the
repayment exceeds the amount included in
income on the 2021 return and you choose
to carry the excess back to 2020 instead of
forward to 2022
Please contact my office if you have any questions
or concerns regarding these issues, need to
file an amended return or still need to file your
2020 return.
Suchit Bhayani,
Jun 19, 2021, 5:25 PM