American Rescue Plan Child Tax Credit Result in Tax Bill After Filing 2021 Taxes?

Forum|Forum|5 years ago
March 16, 2021
2 replies
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I'm trying to head off a potential issue I'm seeing I might have when I file my 2021 taxes and want to see if you all are seeing this the same way I am.

My W4 is currently set up to realize I have 4 kids and they're worth $8,000 total in tax credits. As such, my tax withheld from my paycheck is reflecting that. If the new child tax credit changes to be paid monthly starting in July through December, wouldn't that eat up half of that credit that I couldn't claim on my return? My quick math with 4 kids aged 7,6,3, and 1 are my unused portion of the tax credit would be $6,600, resulting in a tax bill of $1,400 more than I thought because my W4 and employer are withholding taxes assuming a $8,000 credit.

Am I thinking about this wrong? I'm lucky to be in a financial position where I can easily just stash away that $1,400 until tax time comes around and pay it, surprised there aren't more articles about this out there if many families who desperately need this money are all of a sudden going to be hit with a tax liability they weren't expecting.

Thank you all for your thoughts!

Not A Product Question

macuser_22

Alumni - Champ

Your W-4 and tax withholding has nothing to do with a tax return. If too much is withheld then you get a larger refund. Employers and withholding is not based on the child tax credit because employers do not know if you qualify for the credit or not.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

SweetieJean

Alumni - Champ

Part of the new Child Tax Credit provides for regular payments of $250 or $300 between July and December 2021 to eligible families. The payments are optional; and if you don't take them, your full credit will be available when you file your tax return in 2022. State tuned for more details as time progresses.

As an aside, many years ago there was an Advanced Earned income Credit that worked in a similar way. Congress eventually did away with it because of inconsistent usage, fraud, and difficulty in administering it.

ThomasM125

Level 15

You are correct, if the child tax credit is paid to you in advance, it would reduce the credit on your tax return which could result in you having to pay some of it back.

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aeberspacherAuthor

Level 2

Right, this is what I was thinking.

My fear is without proper messaging John Doe will have no idea this is the case. That the amount they can claim on their return is not $2,000 per child anymore and when tax season comes around, those July - December payments are already burned through. Right now, every article I've read has made this out to be a great thing for families (which it is), but I've never seen one mention how this interplays with your tax return. That messaging is hopefully coming, but I think we all know far too well that 90% of the American public will have no clue how this could bite them come tax season and will not prepare for that bite.