Tax Return Reduction
One reason could be due to the enhanced Child Tax Credit, according to information gathered from CBSNews.com.
If you have children, you can claim tax credits through the Child Tax Credit (CTC) – a dollar-for-dollar reduction in the amount you owe to the IRS. Under the American Rescue Plan passed as a response to the Covid-19 Pandemic to aid struggling Americans, the Child Tax Credit (CTC) was expanded from $2,000 per child to $3,600 for each kid under age 6 and $3,000 for those between 6 to 17.
However, in order to get money into American’s pockets sooner than the normal tax return period of January to April 15, half of the expanded CTC was paid out in advance through monthly checks from July 2021 through December 2021. The remaining half must be claimed by parents on their tax returns before the filing deadline of April 18, 2022.
(NOTE: the deadline was moved to April 18th this year because IRS offices will be closed for Emancipation Day.)
For example, instead of getting a tax credit for $2,000 as in prior years for their children, parents will claim $1,500 or $1,800 per kid, depending on the age of their child.
Other reasons your tax refund could be smaller according to CBSNews.com include:
- people who received the enhanced CTC payments for a child but didn’t actually qualify for them for various reasons and the IRS didn’t catch it
- parents who are divorced or share custody of a child may be on the hook for repayment if it wasn’t their year to claim the child as a dependent. The parent who claims the child as a dependent for 2021 will receive the CTC instead, and if the other parent mistakenly received the checks in 2021, they’ll need to repay the money.
On the flip side, you could see a larger return if you had a child in 2021. IRS based its eligibility for the advanced CTC payments, as well as the third stimulus check (worth $1,400 for each eligible adult and child), on either 2019 or 2020 tax returns. The IRS, therefore, wouldn’t have known about babies born in 2021 and wouldn’t have directed the advance CTC payments for those children.
That means the parent can claim the full enhanced CTC credit of $3,600 on their 2021 tax returns. They should also be able to receive $1,400 in a stimulus check for the child.
Working parents with kids in daycare could also see a larger return through the Child and Dependent Care Credit, which was expanded through the American Rescue Plan.
Previously, the amount of tax credit a parent could claim was up to $3,000 per dependent. That credit was increased to up to $8,000 per child — with a maximum of $16,000 for two dependents with some caveats.
- The child must be under 13
- A person who isn’t mentally or physically capable of caring for themselves
- Lives with the taxpayer more than half the year
- Is a dependent
- A parent, or both parents, if filing jointly, must have earned some income in 2021
Be sure to check with your tax advisor of visit the IRS website for more information. Advance Child Tax Credit Payments in 2021 | Internal Revenue Service (irs.gov)