Don’t count on that tax refund yet. Why it may be smaller this year

Don’t count on that tax refund yet. Why it may be smaller this year

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In the event you’re banking on a tax refund, it could be smaller, or it’s possible you’ll owe cash this season, in accordance with monetary consultants.

Sometimes, you get a federal tax refund whenever you’ve paid or withheld greater than the quantity you owe, based mostly on taxable revenue.  

The IRS subtracts the larger of the usual or itemized deductions from adjusted gross revenue to succeed in taxable revenue, and there are a couple of the explanation why it could be greater in 2021.

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That’s $500 less than the $2,000 credit received the previous year, assuming you have the same income, he explained, and it may be worse with multiple children.  

“It could be the difference between someone getting a small refund and owing a lot,” Lucus said.

Moreover, you may have to return part of the advance tax credit if 2021 adjusted gross income exceeds certain limits. 

The phase-out begins for single parents over $75,000 or joint filers above $150,000. Families lose eligibility for the enhanced tax credit amounts over $95,000 for single filers and $170,000 for married couples filing together.

Paused student loan payments

In March 2020, the U.S. Department of Education gave millions of Americans the option to pause monthly student loan payments, and nearly 90% of borrowers have accepted.

While the break offered relief through 2021, there’s a trade-off at tax time: no write-off for student loan interest. 

Typically, borrowers may deduct up to $2,500 of interest, depending on how much they paid, and it’s an “above-the-line” tax break, reducing gross income, even without itemizing deductions. 

It could be $500 or $600 at the end of the day, in real money, after that adjustment.

Patrick Amey

Advisor at Financial Advisory Service, Inc.

The $2,500 benefit starts to phase out in 2021 with modified adjusted gross income over $70,000 for single filers and $140,000 for joint returns.

Single borrowers above $85,000 or couples filing together over $170,000 aren’t eligible.   

It’s significant for lower to middle-income filers making student loan payments, said Patrick Amey, a CFP and advisor at Financial Advisory Service in Overland Park, Kansas.

“It could be $500 or $600 at the end of the day, in real money, after that adjustment,” he said.

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