2022 Tax Refund: Why the IRS Might Send You a Smaller Refund KLBK | KAMC

(CBS MONEYWATCH) – Getting a tax refund is a highly anticipated event, with 3 in 4 taxpayers typically receiving a check from the IRS after filing their tax return. But this year, tax experts are warning some people may receive a smaller-than-normal check.

The biggest problem that could impact tax refunds is the improved child tax credit, tax experts note. The IRS has yet to say when it will start accepting tax returns, but it usually opens for new filings around the end of January.

People receive tax refunds if they have paid more to the IRS throughout the year than they owe. The tax administration then writes a check for the difference.

Some taxpayers may also claim tax credits, which are a dollar-for-dollar reduction in the amount you owe the IRS. These credits are generally intended for specific groups of taxpayers, such as parents, students, or low-income workers.

This is where the child tax credit comes in.

As part of President Joe Biden’s US bailout, the Child Tax Credit (CTC) has increased from $ 2,000 per child to $ 3,600 for each child under 6 and to $ 3,000 for children. children from 6 to 17 years old. But despite the larger tax credit, the program could provide a touchdown on some parents’ tax refunds when they file their returns.

Indeed, half of the expanded CTC was prepaid through monthly checks from July 2021 to December 2021 – and parents will claim the other half of the tax credit on their tax returns by the date. April 18, 2022 filing deadline. (IRS offices will be closed this year on the traditional April 15 tax deadline for Emancipation Day, extending the filing deadline to 18 this year.)

In other words, instead of getting a tax credit of $ 2,000 as in previous years for their children, parents will claim $ 1,500 or $ 1,800 per child, depending on the age of their child.

Take a family with two children aged 8 and 10: when the parents file their application, they will claim a tax credit of $ 3,000 for the two children (representing half of the combined $ 6,000 of tax credits offered). for two children under the extended collective labor agreement). Yet this actually means a decrease of $ 1,000 in tax credits from the previous tax year when they would have claimed $ 4,000 for their two children. The result could be a lower tax refund in 2022, according to tax experts.

“A lot of people will get their refunds and they won’t get as many as expected,” noted Toby Mathis, founding partner of Anderson Law Group and tax expert. “The people who are going to hurt are those who anticipate the total amount, not knowing that the money they have received [in 2021] was an advance payment of the tax credit.

Certainly, some parents were aware of this problem and withdrew from monthly advance payments because they preferred to get a larger refund, said Mark Steber, tax information manager at Jackson Hewitt.

“Some people want to take full advantage of the tax credit when they apply, or they weren’t sure if they qualified,” Steber explained. “A lot of people have taken advantage” of the IRS portal to opt out of advance payments.

At the same time, some parents and taxpayers could end up with larger tax refunds.

Below are some of the scenarios in which people could get larger or smaller tax refunds this year due to tax code changes in 2021. There’s just one big caveat: each Tax situation is unique since tax refunds depend on a number of factors such as income tax brackets as well as tax credits and deductions such as pension contributions.

Less reimbursement: the impact of the CTC

For the reason mentioned above, some parents may get a lower CTC tax credit when they file their tax return this year, reducing their typical tax refund.

But there are other issues with the CTC that could also eat into a taxpayer’s refund, tax experts have said. Among them are people who received the enhanced CTC payments for a child, but who were not eligible.

“A lot of people could experience a rude awakening this year,” said Christian Cyr, CPA and President and Chief Investment Officer at Cyr Financial.

One of her clients had a child who turned 18 last year, but as the IRS based CTC eligibility on the 2020 returns, it turned out the child was 17. date of birth, so they started paying my client $ 1,500 through advance tax payments, ”Cyr said. “He said, ‘What does that mean? “”

The answer, Cyr said, is that the parent will have to repay the advanced CTC payments. In this case, the IRS would reduce a taxpayer’s refund amount to recover the overpayment.

Likewise, some parents who are divorced or who share custody of a child may be required to repay if it was not their year to claim the child as a dependent. The parent who declares the child as a dependent for 2021 will receive the CTC instead, and if the other parent mistakenly received the checks in 2021, they will have to reimburse the money.

Larger reimbursement: Parents with a child born in 2021

Some people could see a larger refund in early 2022, including families who welcomed a child into their family in 2021, tax experts have said.

Indeed, the IRS based its eligibility for advanced CTC payments, as well as the third stimulus check (valued at $ 1,400 for each eligible adult and child), on the 2019 or 2020 tax returns. The IRS would therefore not have been aware of the babies born in 2021 and would not have directed the CTC advance payments for these children.

Families with babies or children born, adopted or placed in foster care in 2021 will be able to claim the full enhanced CTC credit on their 2021 tax returns, which will give them a credit of $ 3,600 per child. On top of that, they should also be able to receive $ 1,400 in stimulus checks for the kid, Jackson Hewitt’s Steber said. Together, these moves could increase a family’s tax refund by $ 5,000 per child.

Larger reimbursement: parents who work with children at daycare

One big change in the tax code that isn’t as well-known as the Child Tax Credit is the Child Care and Dependent Credit, which was extended through the US bailout.

Previously, parents who paid 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 American 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 child must be under 13 or someone who is not mentally or physically capable of looking after themselves, lives with the taxpayer for more than half of the year and is a dependent. Additionally, a parent – or both parents, if they are filing jointly – must have earned income in 2021 to claim the tax credit.

Not all child care expenses are considered eligible by the IRS, which says night camps and private schools are not covered by the tax credit. But paying a parent to care for a child while you or your spouse is working is considered an eligible expense – as long as that parent is not also a dependent (such as an older sibling).

For eligible families, the tax credit will provide a dollar-for-dollar reduction in their tax liability. It’s also refundable, which means that even if the tax credit exceeds your federal income tax, you will get the extra amount in your tax refund.

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