ROCHESTER, N.Y. (WROC) — CPA Michelle Staebell says now is the time for parents — especially those who have children under the age of six — to consider lowering their paycheck withholding.
Staebell discussed the mid-year tax planning strategy Thursday during News 8 at Sunrise.
“There are so many new tax law changes just for 2021 that would impact some families, particularly families with young children with moderate to low taxable incomes that probably get W-2s and have never thought about changing anything in the past because they get consistent refunds,” she said. “This is the year to take a look at 2021 now to see if any changes should be made mid-year.”
One tax change we’ve discussed at length in this segment – an increase in the Child Tax Credit. “So it’s up to $3,600 for children under six and $3,000 for children between six and 17,” Staebell said. “There’s increased dependent care benefits through an employer that an employer might opt to allow people to put more into their dependent care benefits account. There are also increased dependent care credits. There are just so many changes this year for 2021 alone because of the pandemic that could influence a taxpayer’s situation for 2021.”
Staebell noted these changes would mainly impact a family with young children. “So let’s just say a married couple with two young kids under six – they could see several thousand dollars more in tax credits on their 2021 tax return. So instead of waiting until next year – because some families don’t file until February, March, April, maybe even later of the following year – instead of waiting until next year to get the benefit from these tax credits, taxpayers could go to their employer and say could I have fewer taxes withheld from my paycheck. That would bring more money home every paycheck for the rest of 2021. So more money that taxpayers can pocket now and less of a refund at tax time. But these refund swings could be huge. It could be an $8,000 swing or change in refunds for a family that falls into the perfect situation.”
At this point, the tax changes are not permanent. “If a taxpayer does take advantage of the tax planning opportunity available to them now and change their withholdings to have more money in their paycheck, please keep in mind that in 2022 – as far as we know – everything is going to revert back to the old, lower credits,” explained Staebell. “So a taxpayer would want to go back to their employer and increase their withholding to stay in line because nobody wants a surprise two years down the road when they owe a lot of taxes, plus penalties, plus interest. That would not be good.”
Consult a trusted CPA to see if these tax changes could benefit your family.