Getting a tax refund is a highly anticipated event, with 3 out of 4 taxpayers typically receiving a check from the IRS after filing their tax return. But this year, tax experts warn that some people may receive a smaller-than-normal check.
The biggest problem that could affect the tax refund is the improved tax credit for children, tax experts say. The IRS has not yet said when it will begin accepting tax returns, but it is usually open to new filings in late January.
People receive tax refunds if they pay more to the IRS during the year than they owe. Then the tax agency cuts a check for the difference.
Some taxpayers may also claim tax credits, which are a dollar-for-dollar reduction in the amount you owe to the IRS. These credits are usually targeted at specific groups of taxpayers, such as parents, students, or low-income workers.
This is where the child tax credit comes in.
Under President Joe Biden American rescue planthe child tax credit (CTC) was increased from $ 2,000 per child to $ 3,600 for each child under the age of 6 and $ 3,000 for those between the ages of 6 and 17. But despite the larger tax credit, the program could be successful in some parents’ tax returns. when they submit their statements.
This is because half of the extended CTC was paid in advance by monthly checks from July 2021 to December 2021, and parents will claim the other half of the tax credit on their returns before the deadline. of April 18, 2022. (IRS Offices). will close this year on the traditional fiscal deadline of April 15 for Emancipation Day, advancing the submission deadline to January 18).
In other words, instead of getting a $ 2,000 tax credit as in previous years for their children, parents will claim $ 1,500 or $ 1,800 per child, depending on their child’s age.
Take a family with two children, ages 8 and 10: When parents apply, they will claim a $ 3,000 tax credit for both children (representing half of the $ 6,000 combined in tax credits offered for to two children through the extended CTC). ). However, this actually means a $ 1,000 decrease in tax credits compared to the previous fiscal year, when they would have claimed $ 4,000 for their two children. The result could be a smaller tax return in 2022, tax experts say.
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“A lot of people will get their refunds and they won’t get as much as expected,” said Toby Mathis, a founding partner of Anderson Law Group and a tax expert. “It simply came to our notice then [in 2021] it was a prepayment of the tax credit. “
Of course, some parents were aware of this problem and chose not to make monthly prepayments because they preferred to get a larger refund, said Mark Steber, Jackson Hewitt’s director of tax information.
“Some people want the full benefit of the tax credit when they file the return, or they weren’t sure if they met the requirements,” Steber explained. “Many people took advantage” of the IRS portal to turn off advance payments.
At the same time, there are some parents and taxpayers who could end up with bigger tax refunds.
Below are some of the scenarios in which people could get bigger or smaller tax refunds this year due to changes in the tax code in 2021. There’s just one big caveat: every tax situation is unique because Tax refunds depend on a number of factors, such as income tax brackets, as well as tax credits and deductions, such as retirement contributions.
Minor reimbursement: the impact of the CTC
For the reason mentioned above, some parents may obtain a smaller tax credit for the CTC when they file their tax returns this year, thereby reducing their usual tax refund.
But there are other issues with the CTC that could also consume a taxpayer’s refund, tax experts said. Among them are people who received enhanced CTC payments for a child but did not qualify.
“A lot of people could have a rude awakening this year,” said Christian Cyr, CPA and president and chief investment officer of Cyr Financial.
One of his clients had a son who turned 18 last year, but as the IRS based on CTC eligibility in 2020 returns, it looked like the child was 17 years old. “The IRS isn’t smart enough to figure out whether or not they studied the date of birth, so they started handing out $ 1,500 to my client through advance tax payments,” Cyr said. “He said, ‘What does that mean?’
The answer, Cyr said, is that the father will have to pay the CTC advance payments. In this case, the IRS would reduce the amount of a taxpayer’s refund to claim overpayment.
Similarly, some parents who are divorced or share custody of a child may be awaiting a refund if it was not their year to claim the child as a dependent. The parent claiming the child as a dependent for 2021 will receive the CTC, and if the other parent received the checks in error in 2021, they will have to return the money.
Largest return: parents with a child born in 2021
Some people are likely to see a larger repayment in early 2022, including families who took a child into their family in 2021, tax experts said.
That’s because the IRS based its eligibility for CTC advance payments, as well as the third incentive check (worth $ 1,400 for each eligible adult and child), on the 2019 tax returns or of 2020. The IRS, therefore, would not have known about babies born in 2021 and would not have directed CTC prepayments for these children.
Families with babies or children born, adopted or fostered in 2021 will be able to claim the full enhanced CTC credit on their 2021 tax returns, giving them a credit of $ 3,600 per child. In addition, they should also be able to receive $ 1,400 in a stimulus check for the child, Steber of Jackson Hewitt said. Taken together, these moves could increase a family’s tax return by $ 5,000 per child.
Largest refund: Parents working with children in daycare
A major change in the tax code that is not as well known as the Child Tax Credit is the Child and Dependent Care Credit, which was expanded through the U.S. Rescue Plan.
Previously, parents who paid for someone to care for their child while working or looking for work could claim a tax credit of up to $ 3,000 per dependent. But the U.S. Rescue Plan has increased that credit to $ 8,000 per child, with a maximum of $ 16,000 for two dependents.
There are some limitations. The minor must be under the age of 13 or a person who is not mentally or physically able to take care of themselves, live with the taxpayer for more than half the year and be dependent. In addition, one parent, or both parents, if they file a joint return, must have earned some income in 2021 to claim the tax credit.
The IRS does not consider all childcare costs eligible, which says night camps and private schools are not covered by the tax credit. But paying a family member to care for a child while you or your spouse work is considered an eligible expense, as long as that family member is not as dependent (as an older sibling).
For eligible families, the tax credit will provide a dollar-for-dollar reduction in their tax liability. It is also refundable, which means that even if the tax credit exceeds your federal income tax, you will get the extra amount on your tax return.
- In:
- internal revenue service
- tax refund
- Tax credit for children
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