This is especially so if you qualify for any of the tax breaks under the US Rescue Plan, which was signed into law last March.
In many cases, the tax breaks will also benefit low-income earners who typically don’t have to file a tax return.
Here are some key points that you should keep in mind as you gather materials to prepare for your 1040.
1. More Generous Child and Dependent Care Tax Credit
If you are working or attending school and paying for the care of a child under the age of 13 or another family member who is mentally or physically unable to take care of himself, you may benefit from temporary child increases and dependent care credits. .
“This is a big deal. It’s been greatly expanded,” said Kathy Pickering, Tax Director, Tax Institute at H&R Block.
The credit is based on your income and calculated as a percentage of your qualifying expenses – 50% this year, up from 35% in previous years, although the percentage That hundred is reduced for those earning more than $125,000.
Eligible expenses are deducted from any employer-provided dependent care allowance (for example, money you put into a tax-advantaged flexible spending account).
All in all, this year’s credit can reduce your tax bill – or increase your refund – by up to $4,000 for one dependent or $8,000 for two or more. Before 2021, the credit will only increase by $1,050 or $2,100, respectively.
2. Temporary extension of the child tax credit
The maximum value of the temporary child tax credit is $3,000 for each child age 6 to 17 and $3,600 for each child age 5 and younger.
Unlike previous years, the credit is fully refundable for 2021, which means you can get the maximum amount of the credit even if it exceeds your federal income tax liability. in year.
With the exception of the wealthiest households, “anyone with a child 17 or younger may be eligible to claim the child tax credit,” Pickering said.
SEE: Paying taxes early because of COVID is likely to be delayed again
And for the first time ever, the IRS makes a monthly advance payment on that credit, from July to December. So you’ve probably received about half of your credit and can claim the other half. return upon refund. To help with that calculation, the IRS will send you a letter (Letter 6419) detailing the amount you received, which you should use to adjust the amount you pay. The amount may be different than you expect.
Here’s why: Advanced payments are calculated based on your 2020 or 2019 income and family circumstances. But the final calculation will be based on your 2021 information, which may change the amount you qualify for.
For example, if you have more children in 2021, you may be entitled to more than what you reflected upfront.
Or you may have been overpaid, for example, if you get a divorce and change which parent can claim the child on their tax return. The same could be true if you earn more in 2021 or one of your children turns 18. Whether you have to “pay off” the extra money you received – this is very likely. which means you only received fewer credits in the first half of last year. year – depends on your income.
Those earning less than $40,000 ($60,000 if married) have full refund protection. But if you make more than $80,000 (or $120,000 if married), you may have to pay it back. (Here’s an IRS FAQ on the matter.)
3. Claim a recovery discount credit
Since the pandemic began, the IRS has sent three rounds of Economic Impact Payments to eligible Americans, the last of which is due in 2021.
If you receive that third payment, the IRS will send you a letter (Letter 6475) detailing how much you were paid. You should report that information upon your return.
But if you don’t receive your third payment – or perhaps now qualify for more than you were paid due to a change in your income or family circumstances – you should reconsider whether whether or not to request a refundable credit.
The IRS notes: “Individuals who are not eligible for the Third Economic Impact Payment, or receive less than the full amount, may be eligible to claim a 2021 recovery credit based on the information about their 2021 tax year,” the IRS notes.
If you receive a stimulus payment but your 2021 income will disqualify you, there is good news. “You don’t need to return a third stimulus payment – based on your 2019 or 2020 earnings – if your 2021 earnings will keep you going,” said Mark Luscombe, principal analyst at Wolters Kluwer. not eligible for all or part of the payment,” said Mark Luscombe, principal analyst at Wolters Kluwer, Tax & Accounting.
4. Extended Earned Income Tax Credit
For 2021 only, eligible low- and middle-income wage earners without eligible children may qualify for the larger Income Tax Credit than before.
American Rescue Plan nearly tripled the maximum available credit to $1,502.
To qualify, your earned income for 2021 must be under $21,430 ($27,380 if married filing jointly). And on a flat basis for all EITC recipients, the amount of investment income you can have on your paycheck and still claim the credit increases to $10,000.
The credit was also made available for the first time to childless workers under the age of 19 and workers aged 65 or older.
For those with qualifying children, if they earn $57,414 or less, they may qualify for the EITC. And depending on how many kids they have, they could get a maximum credit of $6,728.
5. Special charity tax deduction
Usually, only taxpayers who minimize their deductions can deduct their charitable contributions. But the IRS is once again allowing standard deduction takers — the majority of tax preparers — to deduct up to $300 in cash to qualified charities. And this year, married couples filing jointly can get a deduction of up to $600.
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https://abc13.com/tax-refund-2022-taxes-child-credit-irs-payment/11501492/ Tax Refund 2022: Things to consider before filing your taxes so you can get more back