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Things to know about filing and paying your 2021 taxes, and getting tax credits
The expanded Child Tax Credit (CTC)
Do you have kids? The American Rescue Plan of 2021 expanded the Child Tax Credit (CTC) for tax year 2021. The legislation also increased the credit to $3,000 per child under 18 (or $3,600 per child under age 6). The CTC could put money in your pocket.
Even though it's past April 18, it's not too late to act to get the Child Tax Credit.
Generally, the way to claim the CTC is to file a form 1040. Use one of the free file options found here. If you work at all and have a child, file a 1040 because you would also get EITC and other tax benefits.
For people who do not have a tax filing requirement, visit the GetCTC website for an easier form to fill out. You can only use the GetCTC website if, in 2021, you:
- earned less than $12,550 in total income
- earned less than $400 in self-employment income
- did not receive the Advance Premium Tax Credit
- are not required to file a full tax return for any other reason
If you believe you did not get all or part of the advance Child Tax Credit payments, claim the full amount you are entitled to on your 2021 tax return.
If the IRS denies your claim, contact us for help.
- The Child Tax Credit has income eligibility requirements. The more money you earn above an adjusted gross income of $75,000 for single tax filers, $112,500 for head-of-household filers, and $150,000 for married-filing-jointly filers, the more the credit amount phases out. If you make below those amounts, you get the full credit.
- In order to claim a child for this credit, there is a seven-part test. AGE (under age 18); RELATIONSHIP/ DEPENDENCY test; SUPPORT (you provided more than half of their financial support); CITIZENSHIP child must have a SSN; RESIDENCE i.e. you must be the custodial parent (the child lived with you more than 6 months of the year) Visit this IRS web page to see if you are eligible.
- Other CTC changes include:
- Half of this credit could have been paid to you in advance, from July to December 2021.
- In the past, to get a CTC refund you had to have earned income of $2,500 or more. Now there is no work requirement to claim the CTC.
- The entire credit is refundable. This means that if you owe no tax, then you get the full amount of the credit as a refund.
- For some lower-income families, any excess CTC amounts received will not have to be paid back when the family reconciles the advance amount on their 2021 return. (For example, if you earned more than expected in 2021.) This applies to families with adjusted gross incomes below $40,000 for single return, $50,000 for head of household, and $60,000 for joint filers. Above these thresholds, the amount that would need to be repaid is phased up before an upper limit of $80,000 on single returns, $100,000 on head-of-household returns, and $120,000 on joint returns.
- Note: This is not a permanent change to the tax code and will expire after tax year 2021 is over unless Congress acts to extend it.
IRS letter about the Child Tax Credit
The IRS is sending a letter to people who got the child tax credit advance payments. The letter is called a 6419 letter. You should keep the 6419 Letter with your tax records. Use the 6419 letter to compare your advance CTC payments received in 2021 with the CTC amount you claim on your 2021 federal tax return.
The 2021 stimulus payment
The American Rescue Plan of 2021 authorized a $1,400 stimulus payment to eligible people. Learn more about it on the IRS website. Most people already received their payments, which were based on income reported on their 2019 or 2020 tax return.
If you believe you did not get all or part of the $1,400 stimulus from the American Rescue Plan of 2021, you should claim this as a “recovery rebate credit” on your 2021 tax return. If tax is owed, the credit will be applied to that amount. If you are due a refund, that sum will reflect the credit.
Even though it's past April 18, it's not too late to act to get the recovery rebate credit (stimulus).
Generally, the way to claim it is to file a form 1040. Use one of the free file options found here.
Should I file by paper or electronically, and how do I find free help?
The IRS is encouraging everyone who can file electronically to do so to prevent delays. In normal years, the IRS issues refunds for paper returns an average of six to eight weeks from the date they get them. When you file electronically, you receive your refund much quicker – typically within three weeks. You may have noticed that last year’s paper returns have been taking months to process. Unfortunately, the IRS expects this year to be just as busy and challenging due to continued COVID-19 related delays and backlogs, especially for paper returns.
Free filing software is available, and free filing help is available! Learn where to get help filing your taxes.
What if the IRS still has not yet processed my 2020 return?
If the IRS still has not processed your 2020 tax return by the time you go to file this year, you do not need to wait to file your 2021 return. The IRS has issued the following instructions:
- If your 2020 tax return has not yet been processed, enter $0 (zero dollars) for your prior year adjusted gross income (AGI).
- If you used the non-filers tool in 2021 to register for a Child Tax Credit payment or third Economic Impact Payment, enter $1 as your prior year AGI.
What do I do if someone claimed my dependents on their tax return?
There are several rules to determine which taxpayer is entitled to claim a dependent. Sometimes you can be in a situation where someone else has claimed a dependent on a tax return. One red flag is if you try to E-File a return and the software program rejects your filing. This is the IRS computer system effectively telling you that the Social Security Number (SSN) of the dependent you are claiming has already been used by someone else.
If you believe that you are the eligible taxpayer and that whoever else claimed the dependent did so against the rules, and your tax return was not able to be e-filed, then you should mail in a paper version of the tax return. Use a form of mailing that gives you a return receipt so you can prove the date that you mailed the return and the date it arrived at the IRS. The IRS will process your paper return (paper returns are taking several weeks longer to be processed than e-filed returns). If the dependent’s SSN has already been used, the IRS will start a “correspondence audit” where they mail letters to both taxpayers who claimed that dependent. The IRS will ask for documents to prove that you meet all of the eligibility rules. If you get a letter about a correspondence audit, contact us for advice. Have the IRS letter in hand when you do.
When is the tax filing deadline in 2022?
For Vermonters, the deadline to file your 2021 income tax returns is Monday, April 18, 2022, with a few exceptions and extensions. The deadline for requesting an extension is also April 18. Asking for an extension would move your filing deadline to October 17, 2022.
Some more tips
- Don’t miss out on this money!: Check out the Property Tax Credit and the Renter Credit (Renter Rebate).
- Gather all the information you need before sitting down to file your 2021 tax return. This is especially important for people who got a stimulus check or monthly Child Tax Credit payments in 2021.
- For common errors you should avoid, see this list on the IRS website. Submitting an accurate tax return will help cut down on processing delays, refund delays, and IRS notices.
- Set up an account and log in securely on the IRS website to access personal tax account information including balance, payments, Economic Impact Payment amounts, and tax records including adjusted gross income.
- You can use a bank account, prepaid debit card, or mobile app to get your refund through direct deposit. Remember, in order to use direct deposit, you will need to know your bank routing and account numbers. You can learn how to open an account at an FDIC-Insured bank or through the National Credit Union Locator Tool.
- When you are ready, file a complete and accurate tax return electronically and choose direct deposit for the quickest refund.
- The best way to check the status of your refund is through the IRS website. Learn more about tracking your refund.
The following was last updated on 11/12/2021:
2020 Tax Year
Here are some things we shared about filing and paying your 2020 taxes.
- It was announced that the federal and Vermont state tax return and payment deadlines were extended. They were due May 17, 2021. This means that the Renter Rebate, Homestead Declaration, and Property Tax Credit form were also due May 17.
- We recommend that you e-file your return if at all possible. File your tax return as soon as possible. This is because:
- If you are getting a refund, you will get it in your hands faster.
- With identity theft a constant problem, it's a good idea to file your tax return before the “bad guy” tries to.
- See information about the improved Child Tax Credit below.
- File your taxes for free online. See our Tax Filing Help page for details.
- Get help filing your taxes. Do you have a low or moderate income? You may qualify for free help to file your federal tax return and apply for a property tax adjustment or renter rebate. Learn about the VITA, TCE and AARP tax preparer programs on our Tax Filing Help page. They will operate differently than in past years because of the COVID-19 pandemic. Call a site near you to find out how to make an appointment. Plans may change at the sites during the tax season. It depends on local conditions, the health and well-being of volunteers, and agency policies.
- If you are a low-income Vermonter, contact us at the Vermont Low-Income Taxpayer Clinic (LITC) by filling out our form or calling 1-800-889-2047 if:
- you are having a hard time managing or paying on an existing tax debt, or
- you are expecting to owe a tax debt in the near future.
- Read about the federal government's Economic Impact Payments (EIP) / stimulus checks. There are three rounds of payments. If you did not get one or more stimulus payments and you think you were supposed to get them, you can claim the "recovery rebate" on your tax return. Learn more about the EIPs and the recovery rebate. Ask for tax filing advice about this process before you send in your return.
- Unemployment benefits and your taxes: Normally, unemployment compensation is taxed. But if your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan excludes from income up to $10,200 of unemployment compensation you got in 2020. This means you don’t have to pay tax on 2020 unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. Learn more on the IRS website if you have already filed your 2020 taxes. Learn more at this link if you have not yet filed your 2020 taxes. You can ask the Department of Labor to withhold federal and state taxes from your weekly benefit if you’d like. For information on Vermont taxes, visit the Vermont Department of Taxes website.
- Advance Premium Tax Credit – Health insurance subsidies: The American Rescue Plan states that any excess premium tax credits paid in advance to subsidize your health insurance plan are not required to be paid back and are waived. This is important for families whose income in 2020 came out to be more than they estimated – for example if they received unemployment or some other benefit that pushed their income up. They will not be required to pay back the extra financial help they got in tax year 2020. (Also, the legislation caps the percentage of household income that can go toward paying for a health insurance premium at 8.5%. This means many Vermonters will be eligible for more financial help to pay for these health plans.)
- A note about renter rebates and landlord certificates. Money directly paid to the landlord from the Rental Housing Stabilization Program or the RHSP Money to Move Program should not be entered as subsidy from the government or as rent paid by the tenant. Landlords should not include rent received from these programs on the landlord certificate, LC-142, line 3 - total rent paid for the calendar year. See the Vermont Department of Taxes website for details. Follow this link for Renter Rebate information.
- Don’t Miss Out on This Money!: The Property Tax Credit and the Renter Rebate
- See the Taxes section of our website for many other tax topics.
Filing an extension
Both forms will ask two questions that you can answer based on last year's return, the current filing year's W-2, or your estimated payment record for schedule SE filers (self-employed people).
The first question is: What is your estimated tax liability? You can write in the amount of tax owed based on your previous year's return if your income and tax rate remained the same.
The second question is: How much have you previously paid in estimated tax? This can be found on their W-2 or can be estimated based on last year's return. Schedule SE filers should be keeping track of their estimated quarterly payments.
It’s important to understand the limitations of an extension -- and the penalties and interest you may pay.
Generally, if you file a tax return that shows you owe tax (what we call a "deficiency") you will be subject to penalties and interest from the May 17 deadline instead of the October 15 extension deadline. This means that while you would avoid the failure to file penalty (a late filing penalty), there is still:
- a "failure to pay penalty" of one-half of one percent for each month, or part of a month, up to a maximum of 25% of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full. (The due date was May 17.)
- interest which generally accrues on any unpaid tax from the due date of the return (May 17 even with a timely extension filed) until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus 3 percent. Interest compounds daily. Right now it is 5%.