Child tax credit: prepare for a lower tax refund if you received monthly payments in 2021

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They might find that they are getting smaller refunds than usual.

Indeed, more than 36 million families have already received half of their enhanced Child Tax Credit in monthly installments in 2021.

“One thing that’s likely to happen is people will get lower refunds than they expected because that refund, in a sense, came ahead of time,” said Barbara Weltman, editor. of “JK Lasser’s Your Income Tax 2022”.

Under last year’s US bailout, parents received half the credit – up to $300 a month for children up to age 6 and $250 for ages 6 to 17 – from July to December. The families of 61 million children received the monthly payments.

It was the first time the credit was given on a monthly basis, intended to help parents pay for housing, food, clothing and school supplies.

Parents can claim the other half of the credit on their 2021 tax return.

Democrats also increased the total child tax credit to a maximum of $3,600 per year for each younger child and $3,000 for each older child.

Before the expansion, which was only effective for 2021, the standard child tax credit could be up to $2,000 for each child up to age 17. The parents claimed it every year on their tax returns, which helped fund their reimbursements.

The Internal Revenue Service sent the families letter 6419, which shows the amount they received in monthly child tax credit payments. It also notes the number of children the agency used to calculate the distributions. Parents will need the letter to determine the remaining amount of credit they can claim on their return.
Families could have opted out of receiving the monthly payments, instead claiming the full credit on their 2021 tax returns. Some parents like to get a bigger tax refund so they can make a big purchase or pay off a debt, for example.

More complicated scenarios

Some parents may find that they will get a much smaller refund – or even have to repay some or all of what they received in monthly Child Tax Credit payments.

Divorced parents who share custody of their children can change child tax credit recipients each year. Since monthly payments were generally based on parents’ returns in 2020, distributions may have been paid to the non-custodial parent in 2021. In this case, that parent would have to repay the funds received and the other parent could claim the full credit on their tax return, Weltman said.

Additionally, families who earned significantly more in 2021 than in 2020 may have received more than they should have in monthly payments. This may allow them to claim only a small amount on their tax return or require them to return part of the distributions.

The full enhanced credit was available to heads of households earning up to $112,500 per year and joint filers earning up to $150,000 in 2021, after which it began to phase out. For many families, the credit then capped at $2,000 per child and began phasing out for single parents earning more than $200,000 or married couples with incomes above $400,000.

Congress has included protections for low-income families whose incomes can be volatile. Household heads earning $50,000 or less and joint filers with incomes of $60,000 or less do not have to repay excess distributions.

File a return 2021

Parents must file their 2021 returns to receive the full enhanced child tax credit, plus any third stimulus payment of up to $1,400 they may have missed. Families may also be eligible for other credits, such as the Earned Income Tax Credit.

Taxpayers can go to a federal site, childtaxcredit.govto find a tool that directs them to free assisted reporting options.
Filing a 2021 return is especially important for low-income families who earn so little that they are not required to file returns.

Lawmakers have made the 2021 child tax credit fully refundable so more low-income parents can take advantage of it. It was previously only partially refundable – leaving more than 26 million children unable to get the full credit until last year because their families’ incomes were too low, according to the Treasury Department.

Monthly payments helped reduce child poverty and family hardship last year, studies show.

To receive the monthly payments, those parents had to file 2019 or 2020 returns, apply for a stimulus check, or use the IRS or Code for America child tax credit portals.

The IRS and community groups are encouraging and helping low-income families file their 2021 returns so they can get the other half of the enhanced child tax credit — or the full amount if they didn’t receive any payment last year.


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