Why is Child Tax Credit payments lowering my return?

[tkp2009]

I have 4 dependents that qualified for the Child Tax Credit stimulus.  We received 6,600 between my wife and I.  We are filing jointly, and made $85,000 in 2021 and $78,000 in 2020.  Both values are well below the $150,000 total that was the cut-off mark.

We received the letter from IRS that shows we both received $3,300.  All true.  But when we input that value it lowers our return from $7,000 to $1,000.  It also says that we have received all of the child tax credits we qualify for and says nothing about the remaining $6,000 that we were supposed to receive from last years legislation.

What's the deal?!?!  It feels like we what actually happened was that we just got an advance on our 2021 tax return and getting snubbed on the $6,000.  I though we would be getting $12,000 and we are only getting $1,000.  Where did we go wrong?

[xmasbaby0]

The IRS is sending out letter 6419 to you.  It will show the amount of advance child tax credit that you received during 2021.  Enter the information from that letter carefully.   The remaining amount of CTC that you can receive will show up on line 28 of your 2021 Form 1040.

PREVIEW 1040

https://ttlc.intuit.com/questions/1901539-how-do-i-preview-my-turbotax-online-return-before-filing

Click on Tax Tools on the left side of the screen. Click on Tools. Click on View Tax Summary. Click on Preview my 1040 on the left side of the screen.

NOTE:   The CTC is indeed a “credit” that can be applied toward any tax liability that you would otherwise have to pay to the IRS.

[tkp2009]

So if it says $6,600 in line 28 that will be included with the $1,000 tax return TurboTax is showing us?

[xmasbaby0]

Your refund amount will be on line 35a.    Again---remember that the child tax credit will be used against any tax liability you have that would otherwise be "Tax Due" that you would have to pay.

[tkp2009]

So Line 28 is what we entered based off of Letter 6419.  Which is correct.  My wife and I both received $3,300 for a total of $6,600 jointly.  That amount is deducted from our eligible return in TurboTax as soon as we finalize that section. 

Essentially what you're saying is that the legislation taxed us to get the child tax credit back and we will only get our return of $1,000?  Fair enough, but what about the remaining $6,000 that was supposed to come at/with our tax return?  There was the 6 monthly payments and the lump sum?  How do we get the lump sum?

[xmasbaby0]

 You got a letter 6419 that showed how much you received from July to December and you had to enter that amount.   The other part of the CTC that you are eligible to receive on your 2021 tax return ends up on line 28.   If you did not have enough tax withheld from your income throughout the year, then it is possible you owe tax to the IRS.   That credit you see on line 28 is being applied to the amount you would otherwise owe.   Have you entered ALL of your 2021 income and all of the tax you had withheld from your W-2's yet?   If you have not entered the tax withheld from box 2 of your W-2's, or entered any estimated tax paid during 2021, your calculations are not accurate yet.

[VolvoGirl · Accepted solution]

If you have 6600 on line 28 but only have a 1,000 refund on line 35a you must have a total tax of 5,600 or more on line 24.  

[VolvoGirl · Accepted solution]

Whoa, wait a minute.   Line 28 should not be the 6,600 you already got.   But should be only the extra amounts you did not get.   And you are not being taxed on it.  Yes line 28 is subtracted but it is subtracted from the tax due on your income.  So it will reduce a tax due or increase a refund.   

[Critter-3]

First let me point out that the Refund-O-Meter is only correct once all your income and expenses have been entered and the program is fully operational. With each entry of income or expenses the meter will continue to vary as the program recalculates the return with each step you take.  If this annoys you then turn off the meter until the end.   

Next ... the program interview flow is  poorly designed  and it  will give you a false refund total early in the interview.   The program gives you 100% of the CTC and the third stimulus credit once you have completed the MY INFO tab early in the interview  and  then much   later in the deductions & Credits tab  you are asked how much of these credits you got in advance and then the credits are adjusted for the advance payments which will show as a reduced refund amount or an increase in the balance due.  

Same thing for the EIC … the program gives you the credit in the refund posted BEFORE  you get to the EIC portion of the interview.  At that point it asks you a couple of questions that could possibly REMOVE the credit already reflected in the refund posted  which is also a point of confusion for many. 

One day the programmers may  get this changed to more timely reflect the section you are working on as you work on it and not way in advance.  Users are not happy when they see the refund being reduced without a good explanation especially when the program says you can get $X as a credit and they see the refund either being reduced or not increased.

[Critter-3]

Ok ... let me see if I can shed some light on this situation that many folks will find themselves in ... that advance was not  the best thing to happen.  Here is an example for just one child ... 

Last year the credit was $2000 of which only $1400 could be refunded after taxes were paid down.

This year the credit is $3000 (or $3600) of which you got 1/2 up front  leaving just $1500 (or $1800) for the credit on the return to pay down your tax bill.

So last year the credit on the return was $2000 and this year it is only $1500(or $1800) ... you are short $500 (or $200) on the return.   You are thinking the credit went up so my refund should be more but remember you got some in advance.  Review the 2020 & 2021 returns side by side to see this in action.  

You need to look at the entries from line 24 to 31 on your tax return form 1040. Then compare them to the same lines on last year's tax return. On these lines you will see your Total Tax (line 24) and the deductions from that tax (lines 25 to 32.) That is where you will find the difference between this year and last year, and that may explain why you owe taxes this year or have a lessor refund than expected. 

[tkp2009]

2021 Line 11 is $84,287, less line 14 of $25,700 for line 15 of $58,587.  You're right about our total tax is Line 24 is $6,632.  But line 19 is blank.  Is that right?  Is that because we received the CTC payments last year?

2020 Line 11 is $78,113, less line 14 of $24,800 for line 15 of $53,313.  However, Line 24 is $0.  This is because line 19 was $6,004.

I have a household of 6 and I believe that's how I've setup my W4.  Do I need to say I have a household of 4 or even lower than that?

[Critter-3]

Don't change anything on your W-4 ... this was an unusual tax year. 

Look at the form 8812 & the 1040 ... note that the  tax bill of $6632 on  line 24  is being paid with the withholdings on line 25d + the CTC on line 28  which gives you a refund of line 35a.   The form 1040 is one long math problem ... follow the calculations on the 1040 & 8812. If they did not give you the $6600 in advance your refund would be $6600 larger.  

When reviewing the 2020 vs 2021 return understand that last year the CTC was only $2000 per child ($8000 for 4 on the 2020 return)  which paid down your tax bill.   This year it is $3000 or $3600  but you got 1/2 in advance which means there was only $6600 on the 2021 return to pay off the taxes ... so naturally your refund will look about $1400 less than last year. 

[tkp2009]

Thanks for the help.  Really appreciate your insights!