Everyone with kiddos should be aware of the Advance Child Tax Credit.
So, here’s the deal…
The IRS paid half of the total child tax credit amount in advance monthly payments. Which you already know since you’ve been receiving the payments!
You will receive a letter 6419 stating the total amount of your Advance Child Tax Credit Payments. Do NOT throw this letter away! You will need this to file your 2021 tax return.
When you go to file your 2021 income tax return, you will claim the other half of the child tax credit.
The IRS used information from your prior tax returns (2019 or 2020) to determine if you qualify. If you qualified, the IRS automatically enrolled you for the advance payments.
Here were the qualifying factors, you and your spouse (if applicable) — must have:
- Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
- Given information using the Non-Filers tool in 2020 to receive the Economic Impact Payment; and
- A main home in the United States for more than half the year or file a joint return with a spouse who has a main home in the United States for more than half the year; and
- A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
- Made less than certain income limits.
So, what does this mean for you?
It means that you need to be aware of a couple of things:
You May Either Owe Or Get Less Of A Refund
One thing to keep in mind with these advanced child tax credit payments is that this WILL affect your income tax return.
Since the IRS paid half of your credit in advance, this will reduce your tax credit on your 2021 income tax return.
To put in perspective:
If you have two kids between the ages of 6 and 17, you will get a $6,000 child tax credit. Which is $3,000 per child.
Let’s jump back to 2020 when you received a $4,000 child tax credit for the two children, and let’s say a $500 refund.
This 2021 tax year, you will get the other half of the child tax credit. Which is $3,000 in this case. The advance child tax credit payments may result in you owing income taxes.
Potentially up to $500 in this scenario, depending on how much the tax situation has changed from 2020.
WHAT TO DO FROM HERE?
If that example is similar to your tax situation, or if you’re nervous about owing due to receiving the advance child tax credit payments.
Then hopefully you saved some of your advanced payments. This will give you peace of mind when it comes time to file your return since you have money already put aside for the tax bill.
And if you end up not owing on your taxes, then you have additional money to put towards your financial goals!
If you aren’t sure of your financial goals, then check out these two blogs to learn how to build a monthly budget and set your financial goals.
If you haven’t saved any payments and are nervous about owing, then you should file your tax return as early as possible to find out if you will owe or not. Once you have all of your necessary tax documents, then don’t hesitate to get that return filed!
If you file your return early and do end up with a tax bill, you have until April 18th to pay that tax bill. Filing early will give you time and an amount to save up for!
Then of course, if you don’t end up owing, you saved yourself a month or two of stressing about a tax bill!
Being intentional with your money and aware of your tax situation throughout the year will set yourself up for success. Instead of setting yourself back come tax time.
Follow along for more tax tips to set yourself up to be better than you were yesterday!
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