Have you finished your taxes? I hope so!
Many Americans may be in for a shock when they file their taxes and find out their expected tax refund.
Tax experts say that Americans may be getting a smaller tax refund than they expect due to the pre-payments on the Child Tax Credit.
Dean Lyman, CFP, says, “I am expecting many families to have smaller tax refunds this year.
The only group that will definitely have a higher refund will be those who did not receive the Advance Child Tax Credit for the last six months of 2021 or who have had a new child since the end of 2020. Almost all other families who did get checks will get refunds smaller than in 2020 (all other tax factors being equal!)
To understand why let’s look at the Advance Child Tax Credit sent to most qualified families. The Advance Child Tax Credit was a payment that was half of the new Child Credit amount. The Child Tax Credit was increased from $2,000 per child in 2020 to $3,600 for each child under age 6.
For each child ages 6 to 16, it increased from $2,000 to $3,000. IRS sent the Advance checks for a total of half of these new amounts. For example, if you had two kids, ages 10 and 14, your Advance checks totaled $3,000 ($1,500 for each child.)”
Because of this, the Child Tax Credit you can claim on your 2021 taxes is only half of the newer higher amount. This requirement means you would have been able to claim $4,000 for your two children in 2020 but only $3,000 in 2021.
This reason is why many families will see their refunds actually be lower on their taxes; they already were given a big chunk of this money through the Advance Child Tax payments.
Unfortunately, not many families connect the two events! They just know they got some payments from the government, and now they are not getting the full credit (even though it is higher!) on their taxes.
Marcus Blanchard, CFP, adds, “Unfortunately, most Americans with children will likely see the refund they receive at tax time go down.
This decrease is due to the IRS initiative to issue the Expanded Child Tax Credit payments as monthly payments throughout the year, rather than waiting to pay it all at once when you file your taxes like we’re typically accustomed to.