Olena Yakobchuk / Shutterstock.com
Many Americans look forward to the New Year when they will receive a government windfall in the form of a tax refund. Some use the money to pay off debts, while others may go on vacation or finance home renovations. Therefore, it helps to know what to expect each year as it can help you plan ahead.
Stimulus 2022: You may be eligible for this $ 2,000 tax break
2021 tax break: IRS allows write-off of $ 600 in donations to qualifying charities
According to Forbes, tax refunds can differ from year to year depending on changes in income, how much you have withheld from your paycheck, and major life events such as a wedding. or the birth of a child. Typically, we know these events have happened and can plan ahead, either putting money aside to pay additional taxes, changing our payroll deductions, or simply waiting for a larger refund. in the case of a new child.
But, due to changes to tax laws in the wake of the pandemic and the stimulus, some Americans could be caught off guard this year, getting a lower tax refund than they received in 2020. Some might be caught off guard this year. even face an unexpected tax bill.
Will your tax refund be lower this year? Here are some factors that could affect you and the amount of taxes you owe for 2021.
Collecting the Child Tax Credit Advance Payments
If you received the Child Tax Credit (CTC) advance payments deposited into your bank account in the second half of 2021, you may receive a lower tax refund. Even though the government has increased the total amount of the CTC from $ 2,000 per child to $ 3,000 per child (for children 6 to 17) and up to $ 3,600 for children under 6, you will not be claiming the full amount on your taxes since you have already received half of the funds. Since this is a fully refundable tax credit that lowers your tax bill or increases your refund, your refund could be lower if you took half the credit up front.
Related: Your November Child Tax Credit May Have To Be Repaid – Here’s Why
In addition, if you were eligible for the advance credit based on income for 2020, but your income for 2021 was greater than $ 150,000 per couple or $ 112,500 for a head of household filer, you may need to return some of the tax credit when you file. your feedback. Again, this could reduce your refund or even result in a tax bill.
Hold Interest-Free Federal Student Loans
In March 2020, as part of the American Rescue Plan, the government suspended federal student loan payments and set student loan interest at 0%. The postponement will end on January 31, 2022.
Plus: Your employer can pay $ 5,250 per year for your student loans tax-free until 2025
If you usually deduct federal student loan interest from your taxes, you won’t have to deduct as much this year. Typically, you can deduct up to $ 2,500 in interest payments as long as your Modified Adjusted Gross Income (MAGI) is less than $ 70,000. At $ 70,000, it starts to disappear until you no longer qualify for deductions at $ 85,000. For married couples, the deductions gradually come in at $ 140,000 and disappear at $ 170,000.
Student loan defaults
While this doesn’t affect your tax bill per se, if you default on your student loans, you might not receive your tax refund at all. On February 1, 2022, the government may be allowed to keep your tax refund to pay off your student loan debt if you are in default. Stay tuned, however, as advocates are asking for a transition period of up to 90 days before collection actions can resume.
What to do if you’re worried about a smaller refund or a bigger tax bill
If you’re worried about a smaller tax refund this year, there’s still time to refuse to receive the last of the CTC advance payments. Visit the CTC update portal by November 29, 2021 to opt out of the December 15 payment (but be aware that both parents must opt out of the payment). The extra payment could make a small difference in your 2021 tax returns.
2022 Tax Brackets: How Much Will You Pay Based on the Latest IRS Inflation Adjustments?
Tax brackets 101: what is the marriage penalty and when does it affect you the most?
If your income has changed significantly, if you have student loan debt that previously offered interest deductions, or you just don’t know how to file a return amid all the changes, see a tax professional.
More from GOBankingTaux