IRS Provides Procedures for 2021 Non-filers to Access Tax Benefits

(Parker Tax Publishing February 2022)

The IRS issued procedures for individuals, who are not otherwise required to file federal income tax returns for tax year 2021, to claim (1) the child tax credit under Code Sec. 24, (2) the 2021 recovery rebate credit under Code Sec. 6428B, and (3) the earned income credit under Code Sec. 32. The procedure does not apply to individuals who are required to file federal income tax returns for tax year 2021 (for example, individuals reconciling advance payments of the premium tax credit under Code Sec. 36B), or to individuals who already filed a paper or electronic tax return for 2021. Rev. Proc. 2022-12.

Background

Significant taxpayer-favorable changes were made to the child tax credit (CTC) and the earned income credit for 2021 by the American Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2). The ARP amended Code Sec. 24 to increase the amount of the child tax credit, increase the age at which a qualifying child qualifies for the credit (i.e., a CTC qualifying child), and increased the refundable amount of the credit. In addition, the ARP added Code Sec. 7527A to provide monthly advance payments for the last six months of 2021 of the "annual advance amount" of the CTC, i.e., the amount that the IRS estimated as being equal to 50 percent of the refundable child tax credit amount for 2021. The ARP also enhanced the earned income credit under Code Sec. 32 for 2021 by increasing the maximum amounts of the credit for individuals with qualifying children. Further, the ARP extended eligibility for the earned income credit to certain individuals who do not have a qualifying child.

The ARP also provided a third round of economic impact payments, which followed two earlier rounds of advance refunds and credits for 2020. Under Code Sec. 6428B, an eligible individual (i.e., individuals who are not nonresident aliens, dependents of another taxpayer, or estates or trusts) is entitled to a refundable tax credit against his or federal income tax liability for 2021 (2021 recovery rebate credit). The 2021 recovery rebate credit amount is the sum of (1) $1,400 per eligible individual ($2,800 in the case of a joint return) plus (2) $1,400 for each dependent of the eligible individual. Under Code Sec. 6428B(d), the credit is phased out based on an eligible individual's adjusted gross income (AGI). Code Sec. 6428B(f) reduces the 2021 recovery rebate credit amount by the third-round economic impact payments received as an advance refund in 2021.

In Rev. Proc. 2021-24, the IRS provided procedures for individuals not otherwise required to file 2020 federal income tax returns to file simplified returns in order to: (1) receive advance child tax credit payments during 2021, (2) claim the 2020 recovery rebate credit, (3) claim the additional 2020 recovery rebate credit, and (4) receive the third round economic impact payment. The procedure also enabled these individuals who had zero AGI to file complete returns electronically to receive (1) advance child credit payments during 2021, and (2) the third round economic impact payment.

Rev. Proc. 2022-12

Last week the IRS issued Rev. Proc. 2022-12, which allows individuals who are not required to file a federal income tax return for tax year 2021 to provide information to the IRS to claim the CTC, the 2021 recovery rebate credit, and the earned income credit, as well as for other purposes.

Specifically, Rev. Proc. 2022-12 provides:

(1) a procedure for filing 2021 returns electronically for individuals reporting an AGI of zero who are otherwise not required to file a return for 2021 and who are not claiming the 2021 recovery rebate credit, the CTC, or any amount as a refund, but who may need to file a federal income tax return in order to receive certain state or local benefits;

(2) a simplified filing procedure for individuals who are (i) not required to file a return for 2021, (ii) had gross income below the applicable 2021 standard deduction amount ($12,550 for single filers and married filing separately, $25,100 for joint filers, and $18,800 for heads of household), and (iii) are not eligible for the earned income credit, in order to claim the CTC for 2021 and the 2021 recovery rebate credit; and

(3) a simplified procedure that permits individuals who are not required to file returns for 2021, but who earned income during 2021 and are eligible to claim the earned income credit, to claim (i) the earned income credit for 2021, (ii) the child tax credit for 2021, and (iii) the 2021 recovery rebate credit.

Rev. Proc. 2022-12 also permits individuals to claim a refund of withheld federal income tax for 2021.

Practice Tip: Rev. Proc. 2022-12 does not apply to a resident of American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, the Commonwealth of Puerto Rico (Puerto Rico), or the U.S. Virgin Islands (each, a U.S. territory). A resident of a U.S. territory should contact their local territory tax agency for additional information about the earned income credit, the CTC, and the 2021 recovery rebate credit. However, a resident of Puerto Rico should refer to Form 1040-PR, Planilla para la Declaracion de la Contribucion Federal sobre el Trabajo por Cuenta Propia, or Form 1040-SS, U.S. Self-Employment Tax Return, and their instructions, to claim the CTC for tax year 2021.

Rev. Proc. 2022-12 also does not apply to individuals who are required to file federal income tax returns for tax year 2021 (for example, individuals reconciling advance payment of the premium tax credit under Code Sec. 36B). In addition, the procedure does not apply to individuals who already filed a paper or electronic federal income tax return for tax year 2021. According to the IRS, such individuals do not need to file any additional forms or otherwise contact the IRS to claim (1) the earned income credit for themselves and each qualifying child, (2) the CTC for each CTC qualifying child, or (3) a 2021 recovery rebate credit for themselves and each eligible dependent, if those credits were claimed on the previously filed return for tax year 2021.

For a discussion of the child tax credit, see Parker Tax ¶100,700. For a discussion of 2021 recovery rebate credits, see Parker Tax ¶78,800. For a discussion of the earned income credit, see Parker Tax ¶102,100.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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