Filing a tax return may be a lengthy procedure. However, filers may have an additional issue to cope with this year: the Child Tax Credit.
Last year, as part of the American Rescue Plan, a huge relief program approved in March, the Child Tax Credit received a boost. The Child Tax Credit was capped at $2,000 per child until 2021. Last year, the ceiling was raised to $3,000 for kids aged 6 to 17 and $3,600 for kids under the age of 6.
Do You Need To Pay Overpayments From Child Tax Credit?
Between July and December of 2021, half of the Child Tax Credit was paid in monthly installments to beneficiaries' bank accounts. The other half of the credit may be claimed on tax returns due in 2021, which many people are now preparing. If you received more money from the Child Tax Credit than you believe you were entitled to last year, you may be concerned that you may now owe the IRS money. That, however, may not be the case.
Last year, single parents with an adjusted gross income (AGI) of less than $75,000 and married couples with an AGI of less than $150,000 were eligible for the full Child Tax Credit. After that, the credit was phased off, and single parents with an AGI of $95,000 and married couples with an AGI of $170,000 were no longer eligible.
Because the Child Tax Credit was calculated using income from 2019 or 2020, not everyone received the full amount. Some families might have gotten less money than they were entitled to while others could have received more. You may recover the difference if you were underpaid on the Child Tax Credit on your 2021 tax return, which is due on April 18 of this year. But it's a different situation if you were overcharged.
Some nonprofits, thankfully, are exempted from having to repay the IRS. Those married filing jointly or filing as a qualified widow with an AGI of $60,000 or less in 2021 will not be required to reimburse the IRS. The threshold is reduced to $50,000 for people filing as head of household. It's also $40,000 for single filers or married couples filing separately, as per MSN.
Meanwhile, it's usual for parents who split custody to declare their children as dependents on their tax returns. The third stimulus payment and the monthly credit payments were an advance on credits that would be claimed on your 2021 tax return.
However, because the IRS calculated eligibility for the benefits based on 2020 tax returns - or 2019 returns if the 2020 returns had not yet been filed - it's possible that the benefit was given to the wrong parent. So, if a parent claimed a kid in 2020 and the IRS based the reimbursements on that tax return, that parent would very certainly have received the advance child tax credit and stimulus funds, even if the other parent claimed the child in 2021.
Parents who got the benefits in error might use the IRS.gov Child Tax Credit Update Portal to opt out of receiving monthly payments, according to NJ.com.
Child Tax Credit Bolsters Family Finances
Last year, the enhanced Child Tax Credit helped millions of families achieve financial stability. Some households are having difficulty meeting basic requirements just two months after the program's expiry.
According to SaverLife, a nonprofit platform that helps individuals build savings, about 92 percent of families questioned in December said the tax-credit payments helped them improve their financial stability, with 59 percent saying it made a substantial impact on their finances.
In the second poll of little more than 100 homes, 49% said they were able to pay crucial utility bills on time thanks to the cash. According to the study, increased Child Tax Credit payments assisted families in meeting basic needs such as purchasing food, paying bills on time, and building savings, 32 percent of 801 households said they would have a harder time paying key requirements like electricity bills if the expanded credit expired, Yahoo News reported.
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