Americans Should Be Prepared For A Smaller Tax Refund Next Year

There are myriad factors that affect the size of your tax refund— that is, if you get one at all. Not only does your income play a role in your annual tax bill and thus your refund, but the amount you have withheld from your paycheck (or how much you sent in quarterly taxes) matters just as much. Then there are deductions and credits that may apply one year and not the next. If you're in the midst of a big life transition (i.e. you had a child this year or you lost your job, resulting in a major loss in income), it's possible your tax refund could look a lot different when you get your tax refund in early 2022. Of course, there are some tax situations you can't possibly plan for, as well as others that are determined by the federal government, your state, or the Internal Revenue Service (IRS). With that in mind, there are two major factors that could leave you with a much smaller tax refund next year. While they won't apply to everyone, these factors can impact your tax refund dramatically if you have federal student loans, children, or both. In order to provide a boost to the economy in light of the ongoing pandemic, the Biden administration instituted advance child tax credit payments to eligible families in 2021. These advance credits essentially allowed families to receive half of their normal child tax credit as an advanced cash payment on a monthly schedule through the end of 2021. Families have been instructed to claim the other half of their child tax credit when they file their 2021 income tax return in 2022. In the meantime, the American Rescue Plan increased the Child Tax Credit from $2,000 per child to $3,000 per child for kids ages 6 and older and from $2,000 to $3,600 for children under the age of six. The age limit for the credit was also raised from 16 to 17. This means many families with kids have received a check of up to $300 for each of their eligible dependents in July, August, September, October, and November so far. The final installment of the advance child tax credit payment will be sent to eligible families on December 15, 2021. These payments have provided a much-needed boost for millions of working parents, but many may not realize they will now receive half of the child tax credit they were going to receive when they file their 2021 income tax returns. Ultimately, this could lead to some families receiving a smaller refund than expected, or perhaps even facing a tax bill when they file their taxes next year. For full disclosure, it was possible to "opt out" of the advance child tax credits earlier this year, but many people couldn't seem to figure out how to do it. With that in mind, there were certainly some families who received these advance payments this year who didn't need them or want them. If you have children and you haven't been receiving these payments, it's likely you didn't qualify. According to Whitehouse.


All data is taken from the source: http://forbes.com
Article Link: https://www.forbes.com/sites/robertfarrington/2021/11/22/americans-should-be-prepared-for-a-smaller-tax-refund-next-year/


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