401K, IRA, STOCKS I Started Investing This Year, What Do I Need to Know Come Tax Time?

401K, IRA, STOCKS I Started Investing This Year, What Do I Need to Know Come Tax Time?

When I first started investing in the stock market, I wasn’t quite sure what I was doing. I wasn’t sure if my purchases would lose value the moment I bought them or if they would grow into exponential figures. I was also scared that my hard-earned money was going to vanish, and to top it all off, I didn’t know how to report my investments on my taxes.

The start of the coronavirus contributed to stock prices dropping, and many jumped into investing for the first time, especially when it came to Millennials and Gen Z. The ability to easily trade and invest with a rise of investment apps like RobinHood, Stash, Acorns, and Coinbase also attributed to the increase of investors in the last few years.

If you are a first-time investor, let me be the first to congratulate you on your smart, long-term move and explain how the taxes on your investments work.

Investing for your future and for your retirement is one of the most important things that you can do, but the impact of investing on your taxes can also be uncertain. Fortunately, these tips will give you a solid primer on what you need to know about taxes and your investments, and they will answer questions like:

After checking out the below tips, get ready to report your investment income with automatic import from thousands of financial institutions and get unlimited tax advice from real tax experts with TurboTax Live Premier! TurboTax Live Premier also helps you calculate capital gains/losses and even set up new rentals and report depreciation.

What to Expect if I Invested?

Like any employer who pays you during the year, you will get tax forms for any taxable events. The IRS requires these forms from the mutual fund companies and brokerage houses, so you’ll also get a copy to help you complete your taxes.

You will not get tax forms if you have not had taxable events. If you have any tax-deferred or tax-free accounts, many of those taxable events will not actually be taxable. For example, in a taxable brokerage account, a common stock paying a dividend is a taxable event. However, dividends in a 401(k) or Roth IRA are not considered a taxable event. You won’t get a Form 1099-DIV associated with that payment at the end of the year.

What are Common Taxable Events and Tax Forms?

Sale of a Security

If you buy a stock or mutual fund and then sell those shares, that is a taxable event. If you sold for a gain, it’s either a long-term or short-term capital gain. If you sold for a loss, it’s either a long-term or short-term capital loss. All brokers will issue a Form 1099-B to explain the sale or trade of any security.

If you have a gain and have held the security for one year or less, it’s taxed as a short-term gain. If you’ve held it for more than a year, it’s taxed as a long-term gain. At the end of the year, you offset your short-term gains with your short-term losses and your long-term gains with your long-term losses. Those are the values that get taxed at their respective rates.

If you have a net loss, you’re allowed to deduct up to $3,000 of those losses against your ordinary income. If you have more than $3,000 in losses, you can carry those losses to future years. For example, if you have $5,000 in losses, you take $3,000 this year and push the $2,000 to next year. Losses aren’t fun to experience but at least you get a tax deduction!

If you sold stock last year, check out our free Capital Gains Interactive Calculator, that in just one screen, you can get answers to your burning questions about your stock sales and get an estimate of how much your stock sales will be taxed and much more. You can also find out if you have a capital gain or loss and compare your tax outcome of a short term versus long term capital gain, whether you already sold or you are considering selling your stock.

 

 

Payment of Dividends or Interest

Another common taxable event is when a stock or fund pays you a dividend or interest. They’re both cash payments, which you can reinvest at your own option, but they’re taxed differently.

A qualified dividend is a cash payment by a company, typically funded by their income, and has a lower tax rate. Non-qualified dividends and interest are taxed at the same rate as bank interest.

Brokerages and mutual fund companies will send you a Form 1099-DIV for the dividends and a Form 1099-INT for the interest.

How Taxes Are Assessed on Realized Gains?

For many new investors, it’s not clear how your investments are taxed. If you buy a stock and the value of it goes up, you do not have to pay taxes on those gains every year. You only pay when you “realize” the gain by selling the shares.

If you buy 10 shares of Company X for $10 and the stock jumps to $12, you don’t owe taxes on the $2 gain yet. It can continue to grow, without being taxed, until you sell it.

Investments go up in value, but they can also go down. When you have an investment that goes down in value, it won’t have any tax implications until you sell your investment. If you buy 10 shares of Company Y for $10 and the stock falls to $8, you have a paper loss of $2 per share, but no real loss. When you go to sell, you will realize that loss.

Realized losses can be used to offset realized gains. In the above scenario, with Company X going up $2 and Company Y going down $2, you have a realized gain of $20 and a realized loss of $20, respectively. If that were all in the same tax year, the gain is offset by the loss and you owe nothing in taxes.

What is the Difference Between Long Term vs. Short Term Gains?

When it comes to your gains, it’s good to know the difference between short term capital gains and long term capital gains.

Your gains are taxed at the short term capital gains rate when you sell them and have held them for one year or less. Your gains are taxed at the long term capital gains rates when you sell them and have held them for more than a year.

The short term capital gains tax rate is based on your income tax bracket rate. If you’re in the 22% income tax bracket, then your short term capital gains tax rate is 22%.

Long term capital rates remain lower than your ordinary income rates at 0%, 15%, and 20% and are not tied to your ordinary income brackets.

How Capital Losses Can Offset Income?

If you have more losses than gains in a year, you can take up to $3,000 of those losses and apply it against your income, thereby reducing it. Any amount of loss over that $3,000 can be carried forward to future tax years indefinitely.

It’s painful to take a loss, but if you must, it’s nice that you can use it to offset higher taxed income.

What is Net Investment Income Tax?

If you are single or head of household and making over $200,000, or married filing jointly making over $250,000, or married filing separately making over $125,000 you may be subject to the net investment tax of 3.8%. This is an extra tax of 3.8% on net investment income above the threshold amount.

What Kind of Investment Records Should I Keep?

Modern day brokerages and investment apps have pretty good transaction records, but they’re not always perfect. It’s always good to have a backup transaction log of what you purchased – date, number of shares, cost basis, and to include commission and other fees. If there are mergers and acquisitions, or other similar company events, record the details for those as well. It will be important information to have once you sell that stock, mutual fund, etc. TurboTax Premier automatically imports investment transactions from hundreds of financial institutions, eliminating time and improving accuracy. TurboTax also enables investors to import more transactions across all supported investment types than any other tax software provider.

TurboTax Has You Covered

Don’t worry about knowing these tax rules related to investing. TurboTax redesigned TurboTax Premier which tackles the biggest pain points for the over 21 million taxpayers with investments in the U.S., including personalized guidance and data import to eliminate work. If you want additional assurance, you can connect live via one-way video to a TurboTax Live Premier tax expert with an average of 12 years experience to get your tax questions answered.

TurboTax Live Premier tax experts are available in English and Spanish year round and can also review, sign, and file your tax return. You can even connect virtually with a dedicated tax expert who will prepare and file your tax return in entirety with TurboTax Live Full Service without you ever leaving home.

TurboTax Premier can help you accurately figure out your gains and losses, and it’s the only major online tax preparation software that supports importing over 1,500 stock and 2,250 cryptocurrency transactions at once directly from financial institutions, saving you time and ensuring accuracy. TurboTax Premier has partnered with over 300 financial institutions and investment platforms to allow you to auto-import your investment info seamlessly when doing your taxes.

Where’s My Second Stimulus Check?

Where’s My Second Stimulus Check?

This content is for the second stimulus check. For information on the first stimulus check, visit our “Where’s My First Stimulus Check? How to Check the Status” blog post. For information on the third stimulus check, please visit our Where’s My Third Stimulus Check?” blog post.

A second stimulus payment is on the way for millions for Americans.

As a part of the Coronavirus Response and Relief Supplemental Appropriations Act recently signed into law, the IRS announced that they have begun issuing a second round of stimulus payments to eligible tax filers.

Here are answers to some of the top questions you may have about the second stimulus checks:

Who is Eligible for the Second Stimulus Check?

If you have an adjusted gross income (AGI) of up to $75,000 ($112,500 Head of Household,  $150,000 married filing jointly), you could be eligible for the full amount of the recovery rebate – $600 for eligible individuals, $1,200 for joint taxpayers, and an additional $600 for each dependent child under 17.

*Note, adjusted gross income (AGI) is your gross income like wages, salaries, or interest minus adjustments for eligible deductions like student loan interest or your IRA deduction. Your AGI can be found on line 8b of your 2019 Form 1040.

As your AGI increases over $75,000 ($150,000 married filing jointly), the stimulus amount will go down. The stimulus check rebate will completely phase out at $87,000 for single filers with no qualifying dependents and $174,000 for those married filing jointly with no dependents.

The same eligibility rules apply to the second stimulus payment as the first one. You must have a valid Social Security number, and you can’t have been claimed as a dependent on someone else’s 2019 tax return.

In general, taxpayers without an eligible Social Security number are not eligible for the payment. However, households with different immigration and citizenship statuses will be eligible to receive $600 per individual and $600 per child with Social Security numbers.

You can check and see if you are eligible for the second stimulus payment and how much you’re eligible for using TurboTax Stimulus Check Calculator.

I’m Eligible for a Stimulus Check, How Do I Receive My Payment?

There is nothing you need to do to get a stimulus payment. The IRS has begun issuing stimulus payments using the most recent information they have on file, likely from your 2019 tax return, either by direct deposit or by check.

Taxpayers with direct deposit information on file will receive the payment that way. For those without current direct deposit information on file, they will receive the payment as a check or debit card in the mail. As part of the income tax filing, the IRS receives accurate banking information for all TurboTax filers who receive a tax refund, which the IRS is able to use to deposit stimulus payments.

The IRS is directing tax filers, who have not received their full payment by the time they file their 2020 tax return, to claim the Recovery Rebate Credit on this year’s tax return since these payments are an advance of the Recovery Rebate Credit on the 2020 Form 1040 or Form 1040-SR. TurboTax will guide tax filers through the process of claiming the Recovery Rebate Credit so that eligible filers get every dollar they deserve.

When Will I Receive My Stimulus Check? How Do I Track the Status of My Stimulus Check?

According to the IRS, direct deposit payments have begun being distributed. Paper checks and prepaid debit cards for eligible filers who do not have ACH information on file began being mailed starting Wednesday, December 30.

The IRS is the only source for when and how your stimulus payment will be distributed. You can check the status of both your first and second payments by using the Get My Payment tool, available in English and Spanish on IRS.gov.

Why Haven’t I Received My Stimulus Payment Yet? 

Unfortunately, because of an IRS error, millions of payments were sent to the wrong accounts and some may not have received their stimulus payment.

We have been working tirelessly with the Treasury and IRS to get stimulus payments to our customers. We know how important these funds are for so many Americans and we regret that an IRS error caused a delay.

UPDATE – January 8th

We are happy to share that stimulus payments will begin to be deposited on January 8th for millions of our customers affected by the IRS error. We expect most of these payments to be available that day, but banks could take a few business days to process. Payment will be deposited into the same bank account that customers received their 2019 tax refund.

Customers receiving a stimulus payment will receive an email from TurboTax informing them of the deposit. We will have more emails going out in the coming days – so if you did not receive one on January 8th, it could still be coming.

We appreciate your patience as these payments are processed. This update may not immediately be reflected in the IRS Get My Payment tool.

For more information, visit the “Why Haven’t I Received My Second Stimulus Check?” blog post.

If I’m not required to file a tax return, how do I get a second stimulus check?

Currently, the IRS will use the information it has on file to deliver stimulus checks, including if you registered using the IRS Enter Payment Information tool in 2020. If you are a Social Security retirement or disability income recipient who doesn’t typically file a tax return, you do not need to take any action to get your stimulus payment as it will be automatically calculated based on information from your 2019 Form SSA-1099 Social Security Benefit Statement or RRB-1099 Social Security Equivalent Benefit Statement and deposited by the IRS.

If you receive Supplemental Security Income (SSI) you will automatically receive your stimulus payment with no further action needed. The Treasury Department, not the Social Security Administration, will make these automatic payments to SSI recipients. You will generally receive the automatic payments by direct deposit, Direct Express debit card, or by paper check, just as you would normally receive your SSI benefits.

Veterans and their beneficiaries who receive Compensation and Pension (C&P) benefit payments from VA who don’t usually file a tax return and didn’t file their tax year 2018 or tax year 2019 taxes also don’t need to do anything and will automatically receive their $600 stimulus check.

If none of these apply, you should be able to file a 2020 tax return and claim the Recovery Rebate Credit to get any payments you deserve during the upcoming filing season.

Will I receive anything for my tax records showing I received a second stimulus payment?

The IRS will issue a letter or form that shows the amount of stimulus you were issued for your records. If you didn’t receive a full stimulus payment and you are eligible to claim more in the form of a Recovery Rebate Credit on your 2020 taxes you should have the form showing the amount of your payment in front of you when you sit down to file your taxes.

Can I get the second stimulus through my 2020 tax return (the one I file in 2021)?

The second stimulus payments will be advance payments of the recovery rebate credit just like the first stimulus payments under the CARES Act. If you are eligible and do not get a payment or it is less than expected, you may be able to claim it on your 2020 tax return as the Recovery Rebate Credit. The IRS is directing tax filers, who have not received their full payment by the time they file their 2020 tax return, to claim the Recovery Rebate Credit on their tax return. TurboTax will guide tax filers through the process of claiming the Recovery Rebate Credit so that eligible filers get every dollar they deserve.

Additionally, if you received too much stimulus based on your actual 2020 income you will not have to pay it back through a tax return in the upcoming filing season, just like the first stimulus payment.

Will I Receive My Second Stimulus Payment on a Debit Card?

The IRS may deposit some stimulus payments on debit cards, including the Turbo® Visa® Debit Card, for taxpayers that chose to receive their refund through that method in tax year 2019. If you received your refund on a Turbo® Visa® Debit Card during your most recent tax filing (2019), here is what you need to know.

If you have access to your debit card, there is nothing more you need to do. If the IRS deposits a stimulus payment onto your debit card, you will be able to immediately use the stimulus funds upon deposit.

If you received a notification that you will be receiving your stimulus payment from the IRS on your debit card and no longer have access to it, you can request a replacement card by either signing in to your Turbo Visa Debit Card account or calling 888-285-4169 and reporting your card lost/stolen. We’ll waive or refund standard replacement fees so there’s no cost to you.

We’ve Got You Covered 

You can be confident that TurboTax is here to keep you informed and help you file now.

TurboTax has COVID-19 specific guidance to help you with impacts that happened this year and through coronavirus relief. TurboTax will ask you upfront if you received a stimulus payment and help you claim the Recovery Rebate Credit and other tax deductions and credits you’re eligible for based on your entries.

If you have questions, you can connect live via one-way video to a TurboTax Live tax expert with an average 12 years of experience and get your tax questions answered. TurboTax Live tax experts are available in English and Spanish, year round and can also review, sign, and file your tax return or you can fully hand over your taxes with TurboTax Live Full Service. All from the comfort of your home.

TurboTax will continue to keep you updated on coronavirus relief as more details and guidance come out. Be sure to check back with the TurboTax Blog and our TurboTax Coronavirus Tax Center for the latest information.

What is a Recovery Rebate Tax Credit?

What is a Recovery Rebate Tax Credit?

With all the information covering the stimulus checks and payments you may have heard the phrase Recovery Rebate Credit thrown around and are wondering, “what is the Recovery Rebate Credit?” or “Do I qualify for the Recovery Rebate Credit?”

Don’t worry about knowing answers to these questions. We have you covered and are here to share some information regarding Recovery Rebate Credits so you can feel more informed and possibly save money on your 2020 or 2021 taxes.

What is a Recovery Rebate Credit?

The Recovery Rebate Credit is a credit that was authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. So, if you were eligible for an Economic Impact Payment (EIP), commonly referred to as a stimulus payment, but did not receive one or you received less than the full amount as an advanced payment in 2020 then you can claim the Recovery Rebate Credit on your 2020 tax return. For payments made in 2021, you can claim the Recovery Rebate Credit on your 2021 tax return.

If you did not receive a first or second stimulus check or received less than the full amount you may be eligible for the 2020 Recovery Rebate Credit (RRC).

Generally, the credit can increase your refund amount or lower the taxes you may owe. When the IRS processes your 2020 tax return, if you are claiming the Recovery Rebate Credit, the IRS determines your eligibility and amount based on your 2020 tax return information.

What does the Recovery Rebate Have to do With My Stimulus Payment? 

Depending on your filing status, your adjusted gross income in 2018 or 2019, and the number of dependents you have, you may have received the full amount of the first stimulus payment in 2020 ($1,200 single, $2,400 married filing jointly) plus $500 for each qualifying child and the full amount of the second stimulus payment ($600 single, $1,200 married filing jointly) plus $600 for each qualifying child. If that is the case, you do not need to complete any information on your 2020 taxes.

If you did not receive the full amount of the third stimulus payment in 2021 ($1,400 single, $2,800 married filing jointly) plus $1,400 for each qualifying dependent under the American Rescue Plan then you may be able to claim the Recovery Rebate Credit when you file your 2021 tax return. This is the return you will file in 2022.

Do I qualify for a Recovery Rebate Tax Credit? 

Generally you are eligible to claim the Recovery Rebate Credit if you:

  • Were a U.S. citizen or U.S. resident alien in 2020
  • Were not claimed as a dependent
  • Have a social security number valid for employment that is issued before the due date of your 2020 tax return.

You can take the Recovery Rebate Credit for any recovery rebate amount that is more than your stimulus payments you received in 2020 if you did not receive the full amounts.

The IRS figures out the amount of the Recovery Rebate Credit similar to how they calculated your stimulus payment, except your credit eligibility and the amount of the credit are based on new information from your 2020 tax return (that will be filed in 2021) instead of using your 2018 or 2019 information for the first and second stimulus. For the third stimulus payment, your credit will be based on information in your 2021 tax return (that will be filed in 2022).

Some common possible reasons why the IRS corrected the credit amount are:

  • The taxpayer was claimed as a dependent on someone else’s 2020 tax return
  • The taxpayer did not provide a social security number that is valid for employment purposes
  • The qualifying child was age 17 or older on January 1, 2020
  • A math error relating to the calculating adjusted gross income and any stimulus check amounts already received

If there’s a mistake with the stimulus credit amount, the IRS will calculate the correct amount and make the correction and continue to process the tax return. If a correction is needed, this will cause a delay in processing the tax return and the IRS will send the taxpayer a letter or notice explaining any change.

So, you may be able to claim the Recovery Rebate Credit for the first or second stimulus payments if one of the following applies to you:

  • Your 2020 Tax Information makes you eligible but you were not issued a stimulus check in 2020
  • You are single, your adjusted gross income is less than $75,000 and your stimulus payment was less than $1,200
  • You are married and filed jointly, your adjusted gross income is less than $150,000 and your stimulus payment was less than $2,400
  • Or if you didn’t receive $500 for each qualifying child

Keep in mind that these amounts noted above phase out if your adjusted gross income for 2020 exceeds $150,000 if you are married filing a joint return, $112,500 if you are using the head of household filing status, or $75,000 if you are using single or any other filing status.

For the third stimulus payment, you may be able to claim the Recovery Rebate Credit if one of the following applies to you:

  • Your 2021 Tax Information makes you eligible but you were not issued a stimulus check in 2021
  • You are single, your adjusted gross income is less than $80,000 and your stimulus payment was less than $1,400
  • You are married and filed jointly, your adjusted gross income is less than $160,000 and your stimulus payment was less than $2,800
  • Or if you didn’t receive $1400 for each qualifying child

If I want to Claim the Recovery Rebate Credit What Information Will I Need?

If you didn’t receive the full stimulus payment and want to claim more in the form of a Recovery Rebate Credit on your 2020 taxes you will need the amount of stimulus payment you were issued in 2020. The IRS issued Notice 1444 and Notice 1444B that shows the amount you were issued before any offsets in 2020 so have that form in front of you when you sit down to do your taxes.

I’m a College Student. Can I Claim the Recovery Rebate Credit?

If you meet the eligibility requirements and you are not claimed as a dependent on your parents’ 2020 taxes or anyone else’s then you can file a tax return and claim the Recovery Rebate Credit if you didn’t receive a stimulus payment. Many college students worked in 2020 to help make ends meet, whether it was for an employer or a side gig. If you had federal taxes withheld from your pay you may be able to get some of your withholding back in the form of a tax refund, claim education tax benefits, and boost your refund with the Recovery Rebate Credit.

Do I Claim the Recovery Rebate Credit for the Additional Stimulus I Didn’t Receive for My Dependents?

Yes, if you did not receive the additional $500 per qualifying child in your first stimulus check or the additional $600 per qualifying child in your second stimulus check, you can claim the additional stimulus amounts in the form of a Recovery Rebate Credit on your 2020 tax return. If you did not receive the additional $1,400 per qualifying in your third stimulus check, you can claim the additional stimulus amounts in the form of a Recovery Rebate Credit on your 2021 tax return (filed in 2022).

TurboTax Has You Covered

Don’t worry about knowing these tax provisions. TurboTax has COVID-19 specific guidance to help you with impacts that happened this year and through coronavirus relief. TurboTax will ask you upfront if you received a stimulus payment and help you claim the Recovery Rebate Credit and other tax deductions and credits you’re eligible for based on your entries.

If you have questions, you can connect live via one-way video to a TurboTax Live tax expert with an average 12 years experience and get your tax questions answered. TurboTax Live tax experts are available in English and Spanish, year round and can also review, sign, and file your tax return or you can fully hand over your taxes with TurboTax Live Full Service. All from the comfort of your home.

TurboTax will continue to keep you updated on coronavirus relief as more details and guidance come out. Be sure to check back with the TurboTax Blog and our TurboTax Coronavirus Tax Center for the latest information.

401K, IRA, STOCKS I Started Investing This Year, What Do I Need to Know Come Tax Time?

When Will the 2021 Child Tax Credit Payments Start Under Stimulus Relief?

More families will now be eligible for the Child Tax Credit.

The recently passed third stimulus relief package, known as the American Rescue Plan, expanded the Child Tax Credit. Beginning with your tax year 2021 taxes (the ones filed in 2022) the age limit and the amount of the credit will be increased and it will become fully refundable – meaning you’ll be eligible for the benefits even if you don’t owe taxes.

How much will families with children get with the new Child Tax Credit?

Starting in 2021 (the taxes you file in 2022) the plan increases the Child Tax Credit from $2,000 up to:

  • $3,600 for each qualifying child under 6
  • $3,000 for each qualifying child age 6 to 17

This is the first time that families with children age 17 will be eligible for this credit.

Eligible families may receive an advance payment of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above. Instead of getting this credit as part of your refund in 2022, these payments are sent in advance and represent a portion of the tax year 2021 Child Tax Credit.

When Will the Advance 2021 Child Tax Credit Payments Start?

The IRS and U.S. The Department of Treasury announced the first monthly payment of the newly advanced Child Tax Credit will be disbursed to eligible families on July 15, 2021 and will continue on the 15th of every month following unless the 15th falls on a weekend or holiday. These payments will be sent out through direct deposit, paper check, or debit cards.

Who is eligible to get the new expanded Child Tax Credit?

You may be eligible for the full amount of the credit if you have an eligible child and meet one of the following qualifications:

  • Parents with a single filing status or married filing separately making up to $75,000 a year,
  • Parents filing married filing jointly or a parent filing as a surviving spouse, earning up to $150,000 a year,
  • Parents filing as head of household earning up to $112,500

If you have income above these amounts, the credit will be reduced by $50 for each $1,000 that your Modified Adjusted Gross Income (MAGI) exceeds these thresholds.

For example, a couple using the filing status married filing jointly with a child between the age of 6 to 17 and earning $160,000 would still receive the CTC credit but $500 ($10,000/$1000 x $50 = $500) would be phased out.

Families who are not eligible for the expanded $3,000 or $3,600 credit because they earn higher than the modified adjusted gross income mentioned above may still be able to claim the Child Tax Credit up to $2,000 under the existing tax provision for each qualifying child under 17. This credit amount is still available to individuals earning up to $200,000 or married couples filing jointly earning up to $400,000.

**Note, Adjusted Gross Income (AGI) is your gross income like wages, salaries, or interest minus adjustments for eligible deductions like student loan interest or your IRA deduction and can be found on line 11 of your 2020 Form 1040. Modified Adjusted Gross Income (MAGI) is your adjusted gross income with certain deductions like student loan interest added back in. Some deductions are rare so it is possible for your AGI and MAGI to be the same.

How do I claim the new expanded Child Tax Credit?

Although this credit is for your tax year 2021 taxes filed in 2022, the IRS will be paying the credit in advance. The U.S. Department of Treasury announced the first monthly advance payment will be made beginning on July 15, 2021 and on the 15th of the month of each month thereafter unless the 15th falls on a weekend or holiday.

The IRS states that most taxpayers do not need to do anything to claim these advance credit payments. The IRS will likely determine eligibility based on your most recent processed tax filing. If you have not filed your 2020 taxes yet you are encouraged to file them so the IRS has the most up to date information to determine eligibility.

Will I be required to pay this credit back?

The payments being disbursed beginning July 15, 2021 are advance payments of your 2021 Child Tax Credit (CTC) under the American Rescue Plan. If you receive an advance of the 2021 Child Tax Credit, the advanced monthly payments will be reconciled on your 2021 tax year return (the taxes you file in 2022). This means that if your actual 2021 income and dependent information is different from the information the IRS used to determine eligibility for the advanced payments, you may see more or less of the total 2021 Child Tax Credit and in some cases will have to payback any overpayment based on your actual 2021 information when you file your taxes.

In addition, since eligible families will receive advanced payments of the credit before filing their taxes next year, your Tax refund next year will not include the full amount of the credit. Don’t worry about knowing how to reconcile your advanced Child Tax Credit. TurboTax will be up to date with the latest tax laws and will guide you through reconciling the advanced Child Tax Credit.

What about families abroad?

The American Rescue Plans extends the Child Tax Credit to U.S. territories. This allows families in Puerto Rico, including those with fewer than three children, to benefit from the credit by filing directly with the IRS.

We’ve Got You Covered

TurboTax has you covered with the most up-to-date information regarding new legislation and tax filing changes and announcements in response to Coronavirus (COVID-19). TurboTax has proactive guidance related to the events that occurred last year and will ask you simple questions about you and give you the tax deductions and credits you’re eligible for.

If you have questions when you sit down to do your taxes, you can connect live via one-way video to aTurboTax Live tax expert with an average 12 years experience to get your tax questions answered. TurboTax Live tax experts can also review, sign, and file your tax return or new this year, you can fully hand your taxes over to them from the comfort of your home.  TurboTax Live tax experts are available year-round in English and Spanish.

You can find the latest information on the tax changes and announcements in response to COVID-19, here.