Federal Tax summary not correct TTAX 2021 Windows

[imadane1]

I was doing a comparison between my 2020 Turbo tax PDF all documents and 2021.  The first page of both has the Federal Tax return summary.  The Summary for 2021 is not factoring in the Child tax credits so it looks like I am paying more in taxes that I did and it inflates the effective tax rate.

2020 has the Tax credits included in the line for Total Tax

2021 does not include the credits in Total Tax and instead includes them in the Total payments and credits.

But this is not the same.  The child tax credit brings down the total amount of taxes I am actually liable for.

In addition, the program should factor in the amount of the credit I already received in early payments.  It needs to reflect the actual tax liability including credits.

[AliciaP1]

No, the Child Tax Credit became a refundable credit in 2021 and therefore is reported after taxable income.  It is a dollar-for-dollar credit and does not adjust the amount of tax calculated, but reduces the amount of tax you owe.  Your 2021 tax summary is correct.

See What Is the Difference Between a Refundable and a Nonrefundable Credit? for more specific information.

[imadane1]

Thank you for your response but I still say that the Credit whether it is refundable or not does affect my total tax liability and my effective tax rate.

Let's say that I have 3 children and my total tax is 15,000 without the credit.

Those three kids get me 9000 (all over 6).  Now the total tax liability is only 6000.

Without those 3 kids, I would owe 15,000.  It doesn't make a difference fully refundable or not.

Suppose My total tax liability was 8000 without the credit.  Non refundable , my tax would be 0 and effective tax rate 0.00%.  Refundable and I would get a check for 1000 and my effective tax would be negative.  It all still effects my ultimate tax liability.  

[Critter-3]

Sorry even though the child tax credit became totally refundable this year it still must reduce your tax liability first before you can have a refund. Review the 1040 closely and note the child tax credit online 28.

[imadane1]

I think I need to clarify what I believe effective tax rate means.

Effective tax rate = Net amount sent to U.S. Treasury Department for Income tax / Total amount of income (all sources) in a given year.

That is my definition.  By that definition, TTax 2021 is not correct.

[DMarkM1]

You are correct, the definition of Effective tax rate is what the issue is.  For income taxes the effective tax rate is your tax on line 21 divided by your taxable income on line 15;  no matter what you paid or didn't pay.  It is an average of what the varying taxes are on your taxable income. 

What comes after that is just to determine what you are going to pay or get refunded after filing.   Your tax and rate has already been determined. 

After that other taxes (self-employment for example) are added to your tax bill.  Next your payments are subtracted from all the taxes you owe not just income taxes. 

Another useful figure might be your average tax rate.  Your total tax on line 24 divided by your total income on line 9.  Your total tax that you pay doesn't change. 

You are owed the refundable credits whether or not you have any tax due. Some of it in fact is used to pay the taxes owed; so you paid it just not out of earned income.  

Another way to look at it, you could add the refundable credits to your total income on line 9 and divide that by your total tax on line 24. That will tell you the tax rate on all income from all sources including the federal government.