TurboTax is messing up the advance child tax credit 2021

[VolvoGirl]

Didn't you get the other half on 1040 line 28?   That is not for the advance you already got but the credit for the remaining amount.

I found this in a news business article........

While the CTC expansion was structured to not increase taxes on any household, a dollar of credit received in advance results in a dollar less received at filing time. For families unaware of the trade-off, it could mean a surprise when they see their refund total this year.

Consider a married couple with a 10-year-old child who normally received their $2,000 CTC when they filed their taxes. They would have received $1,500 of their $3,000 in advance. As such, they could potentially see their refund shrink by $500 even though their total benefit increased to $3,000 because they are left with $1,500 instead of their normal $2,000 at tax time.

[kb101]

This makes sense- thank you…

[taybe12]

its not giving me a 1500 credit for child

[DoninGA]

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@taybe12 wrote:

its not giving me a 1500 credit for child

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Did you look at your tax return?

The Child Tax Credit is entered on your federal tax return Form 1040 on Line 28. It is added to your other tax payments, it is not a separate refund. Your Total taxes from Line 24 are subtracted from your Total tax payments on Line 33. If you have an overpayment then that is entered on Line 34 as your federal tax refund.

You can view your Form 1040 at any time using the online editions. Click on Tax Tools on the left side of the online program screen. Click on Tools. Click on View Tax Summary. Click on Preview my 1040 on the left side of the screen.

[bandb2008]

This same thing happened to me.  Not only do I go from getting a refund to owing almost the full CTC back,  TurboTax is also calculating an underpayment penalty.

If I remove the CTC advanced payments, TurboTax doesn't go into the Underpayment penalty.  

So this seems to me to be a TurboTax bug...

[JillS56]

The credit is computing correctly and you are able to view the changes in this two-step process.  Your refund amount changed because you are: 

• First, given full credit for the Child Tax Credit, then
• Second, the benefit of the credit was reduced by the amount of advance payments reported.

In the software, TurboTax computes that you qualify for the Child Tax Credit and gives you immediate credit for the total amount of the Child Tax Credit. 

You are able to view the Child Tax Credit on line 28 of the Federal 1040 under Tax Tools / Tools / View Tax Summary / Preview my 1040.

Report the Advance Child Tax Credit payments received under Federal / Deductions & Credits / Your tax breaks / Advance payments, Child and Other Dependent Tax Credits at the screen Tell us about any Advance Child Tax Credit payments. 

• In box 1 report the amount of the advance payments. 
• In box 2 report the number of qualifying children listed on your IRS Letter 6419, not the number of qualifying children you are reporting on your 2021 Federal 1040 tax return. 

TurboTax then reduces the Child Tax Credit by the amount of the advance payments and posts the final amount again on line 28 of the Federal 1040.

You may again view this under Tax Tools / Tools / View Tax Summary / Preview my 1040.

The computations on IRS form 8812 Credits for Qualifying Children and Other Dependents and your 2021 Federal 1040 tax return can be viewed at Tax Tools / Tools / View Tax Summary / Preview my 1040.

@bandb2008

[bandb2008]

Jill

Thanks- but If I REMOVE the ctc TurboTax does not then 'charge' me the underpayment penalty.

This is the part I'm confused about- if I wouldn't have gotten the CTC in advance, I would have gotten a  refund and would not have any underpayment penalty. 

But with the CTC its treating me as if I didn't pay enough taxes...

Why is TurboTax stating I owe the underpayment penalty?

Thanks!

[JillS56]

Go to Form 2010 and see why it is calculating a penalty.   Removing the CTC should have no effect on the underpayment penalty.    

The Refundable Child Tax Credit appears on line 28 which is part of the "total other payments and refundable credits" on Line 32.  

If you are getting the underpayment penalty it is something else that is causing the problem.    A couple of spots to look at:

1. How much is your total tax on Line 24?
2. What is the total amount shown on Line 25d?
3. What is the amount on Line 28?
4. What is the amount on Line 32?
5. What are your total payments on Line 33?
6. What is there an amount on Line 34?

Next, do you have am amount in Line 35a or 37?   If you have an amount in 35a, then there would be no penalty on your return.   I then would ask you why do you think you are paying a  penalty?

If there is an amount on Line 37, if there is a penalty it would be on Line 38.  

Is it possible that you are disqualified from the child tax credit.   What is your AGI for 2021.    There are two phase outs of the Advanced Child Tax credit.  

You are saying when you enter the information for the CTC then you get the penalty and that leaves me to believe that you have to pay back the CTC you received and are not entitled to the remaining half or the Refundable Child Tax Credit.

If you would like to get a token and send it through as a response or another question.   We can look at the return and see if we can figure out what is going on.   Keep in mind that diagnostic copies wipe out your personal information such as names, SSNs, addresses, etc. Only numbers tied into calculations and numbers inputted are shown. To get a token for us go to:

1. Tax Tools
2. Tools 
3. Share My File With an Agent.
4. Send the token or number given to us.

[bandb2008]

Jill

I went through those numbers- 

When I remove the CTC advanced payments  it of course increases the amount on line 28, which then adds that amount to my 'payments and refundable credits' on line 32 and then line 33, total payments.  This then reduces what I owe by that amount (which gives me a refund) and no Underpayment penalty is charged.

If I include the CTC Advanced payments we received it of course reduces Line 28, 32 and 33 which then increases my taxes owed by that amount and then an underpayment penalty is assessed.

I created the token- 933732.

[JillS56]

This is telling me that you received more Advanced Child Tax Credit than you should have and when you report the CTC it calculates that you owe because it is making you pay back some of the Advanced CTC.   

The only thing you can do at this point is to try to get the underpayment penalties waived.  Your explanation for the waiver can be something to the extent that the Advanced Child Tax Credit created the underpayment penalty.

[bandb2008]

Jill

Our AGI is below the 150k for married filing jointly- so should we not be entitled to the entire amount?

I put our token in the last update- posting here again: 933732.

[JillS56]

Thank you for sending the token.   I have had an opportunity to review your tax return.   Everything in the return is correct.  

I think the reason why you feel that it is not calculating correctly is  when you enter the child TurboTax automatically adds the full amount of the child tax credit ($3,000) per child for a total of $6,000.    

When the Advanced Child Tax Credit payment was entered, your refund is reduced because you already received the $3,000.   The balance of the $6,000 is on Line 28.   

The penalty result is because your tax obligation is $16,105 and your W-2 withholdings are $10,514 which leaves a tax liability of $5,591 and then reduces this by the $3,000 of Refundable Child Tax Credit leaves a balance due of $2,591. The penalty of $17 is due to the fact that you did not have enough taxes withheld or paid.  To avoid the penalty the rule is that 90% of the tax liability must be paid.   

If you received a refund last year, then you could get the penalty waived.  To waive:

1. Search Underpayment Penalty
2. Click on Jump to
3. Go through the questions and answer the questions.  Be sure to answer Yes you want to waive the penalty and then waive all.
4. The explanation would be something to the fact that the Penalty is due to the Advanced Child Tax Credit which reduced the credit you would normally have received and caused you to owe instead of a refund.   If you received a refund in 2020, you can also state that you received a refund on your 2020 return.

In summary, the return is completed correctly.   You can waive the penalty if you would like.   

[Tukka]

I understand your explanation. In my case, Turbo Tax is starting with 2000 (instead of 3000) CTC and deducting 500 that I received in advance and showing credit of 1500. It should have been 3000-500=2500. 

I tried to update the software etc. It is still starting with 2000 CTC instead of 3000

Anyone had this issue?

What is the solution? 

[DoninGA]

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@Tukka wrote:

I understand your explanation. In my case, Turbo Tax is starting with 2000 (instead of 3000) CTC and deducting 500 that I received in advance and showing credit of 1500. It should have been 3000-500=2500. 

I tried to update the software etc. It is still starting with 2000 CTC instead of 3000

Anyone had this issue?

What is the solution? 

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Go to this IRS website - https://www.irs.gov/credits-deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-t...

Q C2. Can my Child Tax Credit amount be reduced based on the amount of my 2021 income? (added June 1...

A2. Yes. The Child Tax Credit phases out in two different steps based on your modified adjusted gross income (AGI) in 2021.

The first phaseout can reduce the Child Tax Credit to $2,000 per child.

• That is, the first phaseout step can reduce only the $1,600 increase for qualifying children ages 5 and under, and the $1,000 increase for qualifying children ages 6 through 17, at the end of 2021.

The second phaseout can reduce the remaining Child Tax Credit below $2,000 per child.

Q C4. How does the first phaseout reduce the 2021 Child Tax Credit to $2,000 per child? (added June ...

A4. The Child Tax Credit begins to be reduced to $2,000 per child if your modified AGI in 2021 exceeds:

• $150,000 if married and filing a joint return or if filing as a qualifying widow or widower;
• $112,500 if filing as head of household; or
• $75,000 if you are a single filer or are married and filing a separate return.

The first phaseout reduces the Child Tax Credit by $50 for each $1,000 (or fraction thereof) by which your modified AGI exceeds the income threshold described above that is applicable to you.

Q C5. How does the second phaseout reduce the remaining $2,000 Child Tax Credit? (added June 14, 202...

A5. The Child Tax Credit won’t begin to be reduced below $2,000 per child until your modified AGI in 2021 exceeds:

• $400,000 if married and filing a joint return; or
• $200,000 for all other filing statuses.

The second phaseout reduces the Child Tax Credit by $50 for each $1,000 (or fraction thereof) by which your modified AGI exceeds the income threshold described above that is applicable to you.

[Tukka]

@DoninGA , Thank you!!! this helped..