Last Year's Child Tax Credit Could Increase Your 2021 Tax Return's Refund
PITTSBURGH (KDKA) - Next Monday is the first day to file your 2021 tax returns, and this year you may get a slightly larger tax refund because of last year's child tax credit.
When President Biden and the Democrats passed the American Rescue Plan last year without Republican support, most Americans got an additional $1,400 stimulus check. That's not taxable.
In addition, families with children got a partial advance of a child tax credit. You get the rest of that credit when you file your tax return this year.
"That credit, up to half of the enhanced version, was distributed last year. The other half going on a tax return that you're going to file now," IRS spokesperson Raphael Tulino told KDKA money editor Jon Delano on Wednesday.
Remember that advanced child tax credit of $300 a month for a child under 6 or $250 per month for a child 6 to 17?
Most families got that from July to December. But that's only half the child tax credit you get under President Biden's American Rescue Plan.
"If you received any piece of the advanced child tax credit in 2021, you're going to get a letter – 6419 – and that is a really important letter to keep because that will have information on what you got and what you can receive based on what you put on your return," says Tulino.
Tulino says, for example, if a family got $1,500 in advanced child tax credits for one child last year, you can claim the remaining $1,500 against your taxes owed on your 2021 return. Letter 6419 should help.
Delano: "Have those letters gone out?"
Tulino: "Yeah, started in December and continuing as we speak. So hopefully by the end of the month, we'll have them all out."
Don't forget, for 2021, the child tax credit is a refundable tax credit, meaning if the credit is larger than the taxes owed, you get the difference in a tax refund.
"As part of the pandemic response, they made a lot of these credits refundable. What that means is that if you had low income, moderate income, no income, and you have a whole lot more tax credits than tax liability, they'll refund that money to you," says Mark Steber, chief tax information officer for Jackson Hewitt, a national tax preparation firm.
"The child tax credit has been greatly changed in 2021, up to $3,600 in refundable credit per young child, $3,000 for older children," says Steber.
"The refundable portion is new. Historically, when you get tax credits or this credit, they could offset your taxes," says Steber. "The child tax credit has a zero-tax liability requirement, meaning you can have zero income, have a young child that's under 6, get a $3,600 credit and you'll get a $3,600 tax refund even if you had no tax liability."
But to get that extra refund, you must file a 2021 tax return, and eligible taxpayers should be getting Letter 6419 from the IRS now to help them to do.
"That is a really important letter to keep because that will have information on what you got and what you can receive based on what you put on your return."
This is a one-time deal because all Republicans and at least one Democrat in the Senate oppose President Biden's Build Back Better plan. Biden and almost all Democrats want to extend the larger child tax credit for another year.
Without Build Back Better, that means this year's annual child tax credit drops back to $2,000 per child, is not advanced to anybody in monthly checks, is not refundable and applies to children 16 and under, not 17 and under.