Time to Worry? Here Are the Tax Implications for Stimulus Checks and Child Tax Credit: There’s no question that millions of Americans are already getting a little nervous ahead of the 2021 federal tax filing deadline, even though it is still a few months away.
The reason is that the Internal Revenue Service (IRS) is already pushing taxpayers to get a head start on preparing their respective tax returns, as they could potentially be a bit more complex due to the $1,400 stimulus checks approved last March via the American Rescue Plan and the expanded child tax credits, which give eligible parents a $250 or a $300 payment per child each month through the end of this year.
Stimulus Checks Mean More Taxes?
“No, the payment is not income and taxpayers will not owe tax on it. The payment will not reduce a taxpayer’s refund or increase the amount they owe when they file their 2020 or 2021 tax return next year,” the agency says on its website.
“A payment also will not affect income for purposes of determining eligibility for federal government assistance or benefit programs,” it adds.
For those who didn’t receive the Economic Impact Payment, know that filing a tax return will help out with collecting the missing stimulus checks via the ultra-handy Recovery Rebate Credit, which has been added to the forms again this year.
“File your 2021 tax return electronically in 2022 and the tax software will help you figure your 2021 Recovery Rebate Credit,” the IRS writes. “Your Recovery Rebate Credit will reduce the any tax you owe for 2021 or be included in your tax refund, and can be direct deposited into your financial account.”
Look Out For CTC Overpayment
As for the expanded child tax credit payments, be aware that “in January 2022, the IRS will send Letter 6419 with the total amount of advance Child Tax Credit payments taxpayers received in 2021,” the agency notes.
“People should keep this and any other IRS letters about advance Child Tax Credit payments with their tax records,” it continues.
Do take note that the federal government was directed under President Joe Biden’s stimulus bill to disburse advance payments of the credits in periodic installments. Since these payments are largely based off the tax agency’s estimates on available data—income, marital status, and number and age of qualifying dependent children—there could potentially be outdated or inaccurate data that trigger an overpayment of the funds. Unfortunately, if this is the case, the money needs to be paid back.
For those who are missing CTC payments, according to the Motley Fool, “it’s too late to claim the money as a lump sum in 2021. The IRS allowed those who qualified to claim the money prior to the Dec. 15 Child Tax Credit checks being issued, but that is no longer an option.”
The best option now is to file a 2021 tax return and claim the missing payments as a tax credit.
“Eligible families who did not receive any advance Child Tax Credit payments can claim the full amount of the Child Tax Credit on their 2021 federal tax return, filed in 2022,” the IRS says. “This includes families who don’t normally need to file a return.”
Ethen Kim Lieser is a Washington state-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.