You know all that child tax credit they gave you early?

[bethben]

I may have gotten a letter, but it was after the fact.  I was getting letters about stimulus money at least 1 -2 months after they deposited it in my account.  I'm pretty sure if I did get notification, it was after money was already being deposited and I've had enough frustration with government bureaucracy that I decided not to mess with it.  It was a particularly busy time in our life and honestly, wouldn't it have been better to have an opt in thing instead of trying to opt out?   

Are they doing this again?  I am starting to look in my checking account for random money from the IRS.  

[bethben]

2 minutes ago, ScoutTN said:

We couldn’t get the opt out to work - webpage kept crashing - so we just saved it til after we did our taxes to be safe. Easy enough. 

I agree.  It wasn't a big deal to figure out what happened and just give them the money back.  The whole thing about how I am now in line for penalties next year if I can't figure all this stuff out exactly right makes me irritated.  I'm also more irritated for people who clearly were thinking it was stimulus money.  I was seeing that thought pattern often enough.  

[desertflower]

Sneezyone and frogger, you guys are going to have to agree to disagree.  We have had too many complaints.  We will lock this thread if it continues and that wouldn't be fair to the op. 

[TechWife]

9 hours ago, Clarita said:

Well on the child credit front, they shouldn't have sent it to as many people as they did. If they knew it was going to be so complicated that they sent multiple letters about it, why do it.

I think what people are saying is that:

1)They sent it in compliance with the law that was passed. Take that up with your legislators if you don't want it to happen again.

and

2) It’s not complicated. It’s adding & subtracting. 

Edited March 22, 2022 by TechWife

[JustEm]

47 minutes ago, bethben said:

I may have gotten a letter, but it was after the fact.  I was getting letters about stimulus money at least 1 -2 months after they deposited it in my account.  I'm pretty sure if I did get notification, it was after money was already being deposited and I've had enough frustration with government bureaucracy that I decided not to mess with it.  It was a particularly busy time in our life and honestly, wouldn't it have been better to have an opt in thing instead of trying to opt out?   

Are they doing this again?  I am starting to look in my checking account for random money from the IRS.  

but even without a letter, if you are seeing hundreds of dollars deposited into your account from the IRS that you don't know about you should be investigating what that is about.  And you certainly shouldn't be spending it if you don't understand the possible outcomes of the change that resulted in you getting money monthly.  

[OH_Homeschooler]

9 hours ago, Sneezyone said:

Ma’am, I know a single Mom who pays far more attention to her IRS mail than you did. Why? Because it matters to that individual. Nowhere, in ANY post I made did I mention the name BIDEN, you did. You’re projecting. I can assure you that when my relatives die, the last thing I do is check their withholdings but those aren’t the people at issue here, dads with zero dependent children. Stop moving the goalposts. I agree that the tax code benefits the wealthy. I do not think we agree on what wealthy means. Wealthy is not paying a bit of attention to tax policy/mail until you have to pay.

You could be talking about me! When I see some IRS thing coming on USPS Informed Delivery, I'm on edge all day until I get it and can read it. 

I didn't opt out of the tax credit. And I think I got the largest refund in my life this year. 

 

[Bootsie]

5 hours ago, Carrie12345 said:

YTD income is on every pay stub. I would imagine that people who don’t receive a scheduled paycheck would pay even closer attention to their finances.

YTD income from THAT employer is on every pay stub.  If a worker has more than one employer during a year, has unemployment compensation, any social security income, any outside income, or other earners in the family, that information is not reported on the pay stub.  

Even with it reported on the pay stub, someone has to contact HR in November to make changes in withholding for December (before they get any December pay stubs to know what the total for the year will be).   

It is easy to say that someone who does not receive a scheduled paycheck should pay more close attention to their finances.  Some of the people this is MOST likely to impact is the elderly.  My mom falls into that category and I cannot begin to tell you the number of hours I have spent on the phone with her trying to decipher an IRS letter or some tax nuance (and she has very limited income, does not own property, etc.) 

Another big problem is that paying attention to finances does not necessarily prevent problems.  If you are able to have withholding made throughout the year from a job, it is much easier.  But, if your income comes from another source, then you have to make quarterly withhodings.  Figuring the amount out is tricky.   If you think your income is going to be X for the year and your tax will by Y, you withhold 1/4 of Y for each quarter (which is odd because the quarterly payments are NOT due 3 months apart).  Then, if for some reason you get more than you expect later in the year, your tax bill will be more than Y--but it is not as simple as just sending an additional amount in the fourth withholding payment.  You must have paid 1/4 of your yearly withholding during the first quarter or can face a penalty.  This means if you were expecting a payment next January, but received it in December, you have not withheld enough during the FIRST quarter, simply because you did not correctly predict the unknown future.  To make matters worse, if you receive most of your income later in the year, you must pay withholding on it BEFORE you earn, receive the money.  Say you receive royalty payments in one big check in December.  You had to make 1/4 of the necessary withholding on that payment each of the previous quarterly withholding periods.  In other words, you can be in a situation in which you have to withhold from money that has not even been earned/received yet.  

[Carrie12345]

3 hours ago, Bootsie said:

It is easy to say that someone who does not receive a scheduled paycheck should pay more close attention to their finances.  Some of the people this is MOST likely to impact is the elderly

The elderly are the least likely tax payers to be claiming kids under 17.
Anyone who had kids under 17 and was not living under a rock absolutely should have paid attention to the far and widespread information about the mailed child tax credits in relation to their income.

[Loowit]

I am one of the people that owes due to poor planning on my part, however, it is not all all my fault.  I knew that the monthly payments were an advance on the child tax credit, but instead of being careful to investigate it thoroughly, I trusted that our earlier adjustments to our paycheck tax withdraws would be sufficient.

I am not a tax expert.  My husband is not a tax expert.  We follow the guidelines on claiming exemptions and even tried to be conservative and have them take out more, but it didn't work.  This year we are having extra taken out to be on the safe side next tax season.

Although on the bright side I figured out yesterday that we forgot to claim DD's college expenses, so that makes it so we owe a lot less.  I am glad we hadn't filed yet.

[SKL]

5 hours ago, Bootsie said:

YTD income from THAT employer is on every pay stub.  If a worker has more than one employer during a year, has unemployment compensation, any social security income, any outside income, or other earners in the family, that information is not reported on the pay stub.  

Even with it reported on the pay stub, someone has to contact HR in November to make changes in withholding for December (before they get any December pay stubs to know what the total for the year will be).   

It is easy to say that someone who does not receive a scheduled paycheck should pay more close attention to their finances.  Some of the people this is MOST likely to impact is the elderly.  My mom falls into that category and I cannot begin to tell you the number of hours I have spent on the phone with her trying to decipher an IRS letter or some tax nuance (and she has very limited income, does not own property, etc.) 

Another big problem is that paying attention to finances does not necessarily prevent problems.  If you are able to have withholding made throughout the year from a job, it is much easier.  But, if your income comes from another source, then you have to make quarterly withhodings.  Figuring the amount out is tricky.   If you think your income is going to be X for the year and your tax will by Y, you withhold 1/4 of Y for each quarter (which is odd because the quarterly payments are NOT due 3 months apart).  Then, if for some reason you get more than you expect later in the year, your tax bill will be more than Y--but it is not as simple as just sending an additional amount in the fourth withholding payment.  You must have paid 1/4 of your yearly withholding during the first quarter or can face a penalty.  This means if you were expecting a payment next January, but received it in December, you have not withheld enough during the FIRST quarter, simply because you did not correctly predict the unknown future.  To make matters worse, if you receive most of your income later in the year, you must pay withholding on it BEFORE you earn, receive the money.  Say you receive royalty payments in one big check in December.  You had to make 1/4 of the necessary withholding on that payment each of the previous quarterly withholding periods.  In other words, you can be in a situation in which you have to withhold from money that has not even been earned/received yet.  

I think you can compute your quarterly payments quarterly if you earned a lot at the end of the year.  So you would make a bigger payment in January of the following year if you earned a ton in the 4th quarter.  The penalty calcs are done on a quarterly basis, at least the last I looked.

Also, employers usually withhold more out of bonuses to prevent this kind of problem.

[BlsdMama]

On 3/21/2022 at 4:37 PM, Mrs Tiggywinkle said:

We opted in because this was my understanding—that it was expanded to be a larger credit and so it really wouldn’t affect much at tax time. 

This is how we understood it but it was ugly. Generally speaking? Low five figure return. This year? Four digit pay in. 

[Frances]

41 minutes ago, BlsdMama said:

This is how we understood it but it was ugly. Generally speaking? Low five figure return. This year? Four digit pay in. 

I’m confused as to why you would routinely have the IRS refund you more than $10k each year. Why not adjust your withholding and keep the money for yourself during the year to spend or save or invest?

[cjzimmer1]

1 hour ago, Frances said:

I’m confused as to why you would routinely have the IRS refund you more than $10k each year. Why not adjust your withholding and keep the money for yourself during the year to spend or save or invest?

Not BlsdMama and not as many kids but it wouldn't surprise me if they were in a similar situation as us.  We have our withholdings set very high to the point where we have less than $100 in federal taxes withheld for the entire year and we still get several thousand back each year because of the child tax credit.  Our income is high enough that we do owe taxes but the child tax credit pretty much cancels it out each year.  In other words, there is nothing I can change to prevent getting a large refund each year. However, with what the IRS sent back to us threw off our calculations combined with a child aging out and well, we thought we'd be okay but weren't.  

Edited March 22, 2022 by cjzimmer1

[Tree Frog]

3 hours ago, Loowit said:

I am not a tax expert.  My husband is not a tax expert.  We follow the guidelines on claiming exemptions and even tried to be conservative and have them take out more, but it didn't work.  This year we are having extra taken out to be on the safe side next tax season.

This is us, too. Dh calculates what he thinks our tax bill will be. Last year, we withheld extra, enough to cover what we thought the taxes would be. We're 3 digits in the hole. So for this year, we're doubling the amount withheld from last year.

I don't understand why the withholding amount on the W2 isn't accurate for us. We both withhold at the higher single rate and don't have a complicated tax situation. We shouldn't need to calculate how much extra money to withhold. It's very frustrating!

[Frances]

8 minutes ago, cjzimmer1 said:

Not BlsdMama and not as many kids but it wouldn't surprise me if they were in a similar situation as us.  We have our withholdings set very high to the point where we have less than $100 in federal taxes withheld for the entire year and we still get several thousand back each year because of the child tax credit.  Our income is high enough that we do owe taxes but the child tax credit pretty much cancels it out each year.  In other words, there is nothing I can change to prevent getting a large refund each year. However, with what the IRS sent back to us threw off our calculations combined with a child aging out and well, we thought we'd be okay but weren't.  

That makes sense, although in your case the IRS is only keeping $100 of money for the year. If I’m understanding correctly, you don’t actually have any tax liability. In fact, you are getting back everything you pay in (about $100 per year) plus additional dollars from refundable credits like the child tax credits.

[cjzimmer1]

1 minute ago, Frances said:

That makes sense, although in your case the IRS is only keeping $100 of money for the year. If I’m understanding correctly, you don’t actually have any tax liability. In fact, you are getting back everything you pay in (about $100 per year) plus additional dollars from refundable credits like the child tax credits.

This might be a case of how people view things but based on our income we owe taxes.  AKA line 24 says total tax owed and there is a dollar amount.  And in my point of view this is what I would say our tax liability is. However, further down on the form is where the child tax credit refund comes into play and that amount is larger than the line 24 amount. And that is where our refund amount comes from.

I would expect the majority of families with lots of young kids fall into this area.  The large refunds aren't because we are letting the IRS hold our money all year, the refunds are due to the child tax credit.  We are in essence counting on the child tax credit to "pay" our tax liability.  But when they sent the credit to us directly in advance, we didn't have enough still owed to cover the tax liability.  

[Frances]

22 minutes ago, cjzimmer1 said:

This might be a case of how people view things but based on our income we owe taxes.  AKA line 24 says total tax owed and there is a dollar amount.  And in my point of view this is what I would say our tax liability is. However, further down on the form is where the child tax credit refund comes into play and that amount is larger than the line 24 amount. And that is where our refund amount comes from.

I would expect the majority of families with lots of young kids fall into this area.  The large refunds aren't because we are letting the IRS hold our money all year, the refunds are due to the child tax credit.  We are in essence counting on the child tax credit to "pay" our tax liability.  But when they sent the credit to us directly in advance, we didn't have enough still owed to cover the tax liability.  

I can understand how those with multiple children could end up in this scenario. But I would argue you have no tax liability. Refundable credits are not only taking your tax liability to zero, you are getting money back you didn’t even pay in. The reason refundable credits like the child tax credit appears after line 24 is so that you can not only wipe out all tax liability with them, but in many cases like yours, get more money back than you ever paid in. If they were with the other credits before line 24, their maximum value would only be to reduce your tax liability to zero. You couldn’t get back money you hadn’t paid in. Hence, they wouldn’t be refundable.

Edited March 23, 2022 by Frances

[TechWife]

52 minutes ago, cjzimmer1 said:

This might be a case of how people view things but based on our income we owe taxes.  AKA line 24 says total tax owed and there is a dollar amount.  And in my point of view this is what I would say our tax liability is. However, further down on the form is where the child tax credit refund comes into play and that amount is larger than the line 24 amount. And that is where our refund amount comes from.

I would expect the majority of families with lots of young kids fall into this area.  The large refunds aren't because we are letting the IRS hold our money all year, the refunds are due to the child tax credit.  We are in essence counting on the child tax credit to "pay" our tax liability.  But when they sent the credit to us directly in advance, we didn't have enough still owed to cover the tax liability.  

You didn’t have enough credits with the IRS to pay your outstanding tax bill. But, you did at some point have enough money to cover your taxes, you had already received it in the form of the early payment. 

[GoodGrief3]

On 3/21/2022 at 5:52 PM, Sneezyone said:

only for EMPLOYERS who fail to withhold. Not for individual filers.

I just did our taxes this past weekend. We got a penalty for failing to withhold enough. My husband's employer is not penalized at all.

[GoodGrief3]

On 3/21/2022 at 8:23 PM, frogger said:

I probably should ignore you but I will say we just had a plain old W-2. We have never owned a business

This year was the first time it happened to us, and it had to do with withholding on my husband's military retirement income. His first year retired, new format, we did not notice the problem. We fixed the problem on the first business day after I did our taxes though 😉

[BlsdMama]

12 hours ago, cjzimmer1 said:

Not BlsdMama and not as many kids but it wouldn't surprise me if they were in a similar situation as us.  We have our withholdings set very high to the point where we have less than $100 in federal taxes withheld for the entire year and we still get several thousand back each year because of the child tax credit.  Our income is high enough that we do owe taxes but the child tax credit pretty much cancels it out each year.  In other words, there is nothing I can change to prevent getting a large refund each year. However, with what the IRS sent back to us threw off our calculations combined with a child aging out and well, we thought we'd be okay but weren't.  

Exactly this. Last year we claimed ten kids at home and this year eight. I think it would have been a wash except we received stimulus for dependents (which we gave to them) that they then receive this year as independents. It comes back out of ours of course, as it should. 

[Tenaj]

2 hours ago, BlsdMama said:

Exactly this. Last year we claimed ten kids at home and this year eight. I think it would have been a wash except we received stimulus for dependents (which we gave to them) that they then receive this year as independents. It comes back out of ours of course, as it should. 

We got caught with this situation, too.  I think they were basing the advanced payments from 2019 dependents and we had two age out by this tax return.  We got a refund but it was much smaller than usual which I was expecting so it was fine but I can see it being a shock and a mess if you have older teens who aged out of the credit while you were getting the credit for them.  I should clarify - in our case one aged out of the credit plus one ceased to be able to be claimed as a dependent.   Threw everything off in addition to the prepaid credits.

Edited March 23, 2022 by Tenaj

[BlsdMama]

22 minutes ago, Tenaj said:

We got caught with this situation, too.  I think they were basing the advanced payments from 2019 dependents and we had two age out by this tax return.  We got a refund but it was much smaller than usual which I was expecting so it was fine but I can see it being a shock and a mess if you have older teens who aged out of the credit while you were getting the credit for them.  I should clarify - in our case one aged out of the credit plus one ceased to be able to be claimed as a dependent.   Threw everything off in addition to the prepaid credits.

So just to clarify - 

The third stimulus was $1400 per person.  Previous stimulus didn't include dependent college students but this one did.  We had two.  We paid them their $1400 because they were largely independent at that moment.  Both were declared independent this year as one married and the other turned 23 and is independent.  

So when all other things stayed the same (everyone 17 or under by Jan 1 2022) that $2800 gets paid to them because they "missed out" and it is then removed from our refund - resulting in a debt owed.  

I'm guessing it was a fairly unusual circumstance, kwim? Not many people have huge families spread over twenty years.  We didn't think about it because in our mind they received theirs-  but of course the gov't has no way of knowing that.  So they get it twice but they're starting out and that's a good thing. 😉