According to the Internal Revenue Service, more than 75% of Americans on average get a refund each year but people may be in for an unpleasant surprise this year as the Expanded Child Tax Credit may substantially decrease the refund amount for parents or could stick them with a liability of nearly $2,000 a child.
Brian Mirau, the Founder and President of Mirau Capital Management and investment advisor in New Mexico and Texas, explains that the Child Tax Credits distributed each month to parents was not additional ‘free’ money given out by the government, rather it was a monthly ‘pre-payment’ of a credit parents are permitted to claim at the end of the year.
“The tax credit was a one-year provision that expanded the tax credit from $2,000 to the range of $3,000 to $3,600 depending on the child’s age for each child in the low-income households. The expansion also converted the credit from something you get with your income tax refund to a monthly series of payments that you get throughout the year, so you don’t have to wait to get that money. It just spread out that tax credit over the year instead of getting it in a lump sum at the end of the year.”
Mirau compared it to saving money. Rather than saving all year and getting your money at once, you save a little each month and spend it as you go.
The Child Tax Credit expansion was part of the American Rescue Plan Act that was passed into law in March of last year to counter the financial fallout from Covid-19. In addition to expanding the Child Tax Credit, It included a $600 bonus for kids that are younger than six.
According to the IRS, Some 59 million parents were automatically enrolled in the program and started receiving the monthly payments in July. Enrollment criteria were based on either 2019 or 2020 tax data.
If you still qualify for the Child Tax Credit, parents may see a substantial decrease in the refund they typically receive because they’ve already received half of The Child Tax Credit as monthly payments during the second half of 2020.
Mirau also explains that filing early is beneficial for many reasons including a quicker return on your refund and more time to correctly complete your taxes,
