It’s not very often that a mistake pays off.
But just a few days ago, I received a letter from the IRS saying it was issuing me a check for more than $2,000. As it turns out, you may have made a similar mistake by not taking full advantage of tax relief measures put in place in 2021 to help families recover from the pandemic. My mistake was in calculating my full Child Tax Credit on form 8812, according to the IRS letter. I am due $2,000, plus $74.62 in interest, which, ironically, I must report as income on a future return.
I’m not alone.
The IRS in October 2022 began sending letters to nine million taxpayers who may have erred on their 2021 return, particularly involving the Child Tax Credit, the Earned Income Tax Credit, and/or the Recovery Rebate Credit. Reading my letter, I felt like I was playing Monopoly and received one of those cards: Bank error in your favor. Collect $2,000. But it wasn’t a bank error. It was my error. And I’m thankful – and very lucky – that the IRS noticed the mistake.
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How Did I Mess Up?
As you may recall, 2021 was an exceptional year for the Child Tax Credit. As part of the American Rescue Plan, the federal government allowed families to receive half of their Child Tax Credit in advance. Every month from July 2021 through December 2021, families could receive $300 for every child under the age of 6 and $250 for children between the ages of 6-17. Having two pre-teens, we received $500 per month for six months, or $3,000.
The 2021 form 8812 involved calculating what your Child Tax Credit should have been – roughly $3,000 per child age 6 and older, or $3,600 for younger children – and subtracting what you actually received in advance payments. The IRS admitted last year that it sent letters to many taxpayers with incorrect dollar amounts to report. But what I did was make a simple math mistake that could have been avoided if I had been more careful.
What Should You Do?
If you receive a similar letter from the IRS, you can either appeal it or simply wait 4-6 weeks for the rebate to be deposited into your bank account. If you did not get a letter, consider reviewing your 2021 return with this information from the IRS:
- Even if you received advanced Child Tax Credit payments in 2021, that was only about half of what you may have been due. Review your form 8812 and know that the total credit can be as much as $3,600 per child.
- Check to see if you were eligible for the boosted Earned Income Tax Credit, and if you took it. The EITC in 2021 was worth as much as $1,502 for workers with no qualifying children, $3,618 for those with one child, $5,980 for those with two children, and $6,728 for those with at least three children.
- If you missed out on the third round of Economic Impact Payments (EIP3), you may have been able to claim a Recovery Rebate Credit, often referred to as “stimulus payments.” The maximum credit is $1,400 for each qualifying adult, plus $1,400 for each eligible child or dependent.
- If you were paying for daycare, or after-school care, so you could work, make sure you took advantage of the increased Child and Dependent Care Credit. That was worth up to $4,000 for one child or $8,000 for two or more.
- Even if you took the standard deduction, you could still deduct eligible cash contributions for charities made in 2021. That’s up to $300 for individuals and $600 for married couples filing jointly.
- “Hurry,” according to the Taxpayer Advocate Service. “It’s not too late to claim certain tax credits on your 2021 federal income tax return. You may be eligible to receive the full amount of these credits, even if you have little or no income, or are not usually required to file a federal income tax return.”
The IRS has details posted on its website explaining all of these benefits here: FS-2022-10.
And the Taxpayer Advocate Service has information to help you determine if you were eligible for these boosted benefits here, and how you could still receive them: TAS Tax Tip: File Your 2021 Tax Return to Claim Certain Credits Before Time Runs Out – TAS (irs.gov)
What I Learned
The 2021 Child Tax Credit advance payments made a huge impact on American families. According to the National Bureau of Economic Research, the payments resulted in a 25 percent decline in food insufficiency among low-income families with children. And it benefited 61 million children, keeping nearly 4 million of them out of poverty, according to the Center on Poverty and Social Policy at Columbia University.
But in 2022, those advance payments ceased. And, in fact, the Child Tax Credit was lowered to pre-pandemic levels. Taxpayers will only be eligible for about $2,000 per child, meaning many Americans will receive smaller refunds this year.
How to Learn From My Mistakes
- Triple check your math. I always review every line of my tax return, but now I’ll do that at least twice.
- It may be worth taking my taxes to a professional to see if I’ve been making any other mistakes over the years. The IRS has a database that allows you to check the credentials of tax preparers in your community: www.irs.treasury.gov/rpo/rpo.jsf
- Here are 10 things you need to know about filing taxes this year.
MORE ON HERMONEY:
- This List Will Save You on Tax Prep This Year
- Tax Filing Tips for Women Who’ve Gone Through Some Stuff
- What To Do If You Can’t Pay Your Tax Bill
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