2021 Baby Tax Credit score might give taxpayers a shock subsequent 12 months
The improved Baby Tax Credit score for the 2021 fiscal 12 months moreover being drastically expanded has a brand new characteristic for the practically quarter century previous credit score, it’s paid upfront. This will probably be a boon for a lot of households making an attempt to make ends meet, however might deliver a headache subsequent spring for others.
Usually taxpayers would wait till they file their taxes to say any credit they may obtain as a tax refund, minus taxes they owe. For the reason that quantity of a tax credit score is normally based mostly on how a lot you earn, in case your earnings goes up in 2021 in contrast with the 12 months the IRS calculated how a lot of the Baby Tax Credit score you certified for, chances are you’ll get overpaid.
The IRS says that “in the event you anticipate the quantity of tax you owe to be better than your anticipated refund while you file your 2021 tax return,” chances are you’ll need to decide out.
The American Rescue Plan created a “protected harbor” clause for lower- and moderate-income taxpayers, above a threshold, taxpayers would wish to repay any overpayments they acquired.
Households with adjusted gross earnings at or under $40,000 on a single return, $50,000 on a head-of-household return, and $60,000 on a joint return will not must repay any overpayments on the Baby Tax Credit score that they obtain.
Nonetheless, these households making at or above $80,000, $100,000, and $120,000, respectively, might want to repay your complete quantity of overpayment. For households with earnings in between these thresholds, they might want to repay a portion of any overpayments acquired.