It’s Tax Day! Don’t Make These 4 Mistakes When You File
It's a complicated tax year. Make sure you get the credits you're owed.
April 18th is upon us, and, ready or not, it’s time to file your 2021 taxes if you haven’t already done so. According to Internal Revenue Service (IRS) data, a full third of Americans wait until the last minute to file their income tax returns, many of whom are wading through tax-time confusion as the deadline looms.
This year’s deadline, which was pushed to April 18th due to the Washington D.C. area Emancipation Day holiday, which recognizes the day that Abraham Lincoln abolished slavery in the nation’s capital, is the earliest it’s been in several years. In 2019, the deadline, which is typically April 15th, was extended to July. And last year, the IRS pushed the deadline to mid-May due to pandemic-related tax woes.
This year, many last-minute-filers were expecting another deadline extension, while others were putting off what they assumed was an inevitable tax bill, and still others were just honestly confused about many aspects of this confusing tax year.
If you’re one of the millions of filers who aren’t sure what’s what when it comes to your 2021 income tax, here’s what to know.
How do I file for the Child Tax Credit?
As part of the American Rescue Plan, parents received advanced payments of the popular Child Tax Credit (CTC). The monthly checks, which totaled as much as $3,600 per child, were only a portion of the CTC, with the remainder to be claimed at tax time.
To claim this credit, filers need to confirm that they’re eligible based on income level and number of dependents, and compare the payment amount listed on IRS letter 6419. The IRS will determine the remainder of the credit owed to filers and use it to reduce your gross income on a dollar-for-dollar basis.
The CTC is not a deduction. It’s a credit, which means your taxable income will be reduced. It can result in a higher tax refund, but doesn’t guarantee one.
How do I file for the Recovery Rebate Credit?
Like the CTC, the Recovery Rebate Credit (RRC) is a credit against your taxable income. It reduces the amount of income you’re taxed on a dollar-for-dollar basis, and it can result in a higher refund or a lower tax bill. The 2021 RRC is available to filers who did not receive the total amount of the third economic stimulus payment, which was distributed in 2021.
To determine if you are eligible for the RRC, check your IRS online account or refer to IRS letter 6475, which contains information related to your stimulus check totals. If you did not receive the full amount in 2021, you are eligible and can claim it this year. If you did not receive the full amount of the first or second stimulus payments, you must amend your 2020 tax return and resubmit.
How do I file for the Earned Income Tax Credit?
The Earned Income Tax Credit (EITC) is a credit intended to lower the taxable income of low- and middle-income filers. According to the IRS, you may qualify for the EITC if:
- Have worked and earned less than $57,414
- Have less than $10,000 investment income for tax year 2021
- Have a valid Social Security number
- Were a U.S. citizen or a resident alien for the entire year
- Do not file Form 2555, which deals with foreign earned income
How do I claim the Child and Dependent Care Credit?
The Child and Dependent Care Credit (CDCC) is a tax credit intended to help offset the costs incurred by families who pay for child care or who care for an adult dependent. This year, the CDCC has been increased to up to $8,000, a significant increase from the $2,100 in previous years.
To qualify for the CDCC, families must:
- Have a qualifying dependent
- Have incurred child care expenses while working or looking for work
- File a joint tax return with your spouse, unless you’re legally separated
- Earned less than $438,000 in 2021
How do I file for an extension?
If you’ve waited until the last minute and have a complicated return, you should consider filing for an extension with the IRS to get an extra six months to file. Extensions are free and don’t carry any penalties.
To request an extension, file form 4868 before midnight. Though extensions are free and don’t cause penalties, you are still required to pay your taxes on time if you owe.
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