Will parents have to pay back the child tax credit?
The government sent the Advance Child Tax Credit payments in July of 2021 to eligible families. A qualified family has children under 18. So, if you qualified for the early payments, you should've received several monthly payments by now!
The Child Tax Credit is usually a tax credit for individuals with qualifying dependents given when the individual's tax return is filed. The payments sent out this year are called "advanced payments" because they are tax credits given before the tax return is filed.
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Due to the financial stress of COVID-19, the government chose to send the credits out to qualifying individuals early this year. The government also temporarily increased the child tax credit from the normal $2,000 to a max of $3,600! The 2021 credit is based on the age of each qualifying child. Dependents age 5 and under receive a $3,600 credit. Dependents ages 6-17 receive a $3,000 credit. The 2021 credit phase-out for taxpayers with AGI is over $150,000 for jointly married filing, $112,500 for the head of household, and $75,000 for other filers.
So, for 2021, qualifying families are receiving the credit early, AND they are getting a larger credit for each qualifying dependent than in previous years!
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The advanced payments were divided into six monthly payments and sent out to families monthly July-December of 2021. By the end of 2021, families will have received half of the Child Tax Credit. The other remaining half of the credit will be claimed when taxpayers file their 2021 tax returns.
So, in a nutshell, instead of receiving the Child Tax Credit Payments on your 2021 tax return, the government is allowing families to receive half of that money early. This was set up to help with the financial impact of COVID-19.
This is a great way for families to have some extra money in their pockets during hard times. However, it is important to keep in mind that these payments are different from the stimulus/economic impact payments! These payments are tax credits, which will change the numbers on your 2021 tax return.
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You could have to pay back the credit you receive in advance IF your income changed and you made more money in 2021 than in previous years. This is only if your income increases from 2020 to 2021!
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If you generally owe at tax time, you may owe more than usual. This is because you are receiving the Child Tax Credit early. So it will not be there to help lower any taxes owed when you file.
According to the IRS website, "If you receive a total amount of advance Child Tax Credit payments that exceeds the amount of Child Tax Credit that you can properly claim on your 2021 tax year, you may need to repay to the IRS some or all of that excess payment."
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As you can see, they do expect some taxpayers will have to pay back some or all of the credit. For that reason, it is wise to save some money. At least until it is determined that you will not need to pay it back in 2022.
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The Child Tax Credit is usually a tax credit for individuals with qualifying dependents given when the individual's tax return is filed. The payments sent out this year are called "advanced payments" because they are tax credits given before the tax return is filed.
.
.
What is the Child Tax Credit?
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Due to the financial stress of COVID-19, the government chose to send the credits out to qualifying individuals early this year. The government also temporarily increased the child tax credit from the normal $2,000 to a max of $3,600! The 2021 credit is based on the age of each qualifying child. Dependents age 5 and under receive a $3,600 credit. Dependents ages 6-17 receive a $3,000 credit. The 2021 credit phase-out for taxpayers with AGI is over $150,000 for jointly married filing, $112,500 for the head of household, and $75,000 for other filers.
So, for 2021, qualifying families are receiving the credit early, AND they are getting a larger credit for each qualifying dependent than in previous years!
.
.
The advanced payments were divided into six monthly payments and sent out to families monthly July-December of 2021. By the end of 2021, families will have received half of the Child Tax Credit. The other remaining half of the credit will be claimed when taxpayers file their 2021 tax returns.
So, in a nutshell, instead of receiving the Child Tax Credit Payments on your 2021 tax return, the government is allowing families to receive half of that money early. This was set up to help with the financial impact of COVID-19.
This is a great way for families to have some extra money in their pockets during hard times. However, it is important to keep in mind that these payments are different from the stimulus/economic impact payments! These payments are tax credits, which will change the numbers on your 2021 tax return.
.
What does that mean? Will I have to pay back the child tax credit payments?
.
You could have to pay back the credit you receive in advance IF your income changed and you made more money in 2021 than in previous years. This is only if your income increases from 2020 to 2021!
.
.
If you generally owe at tax time, you may owe more than usual. This is because you are receiving the Child Tax Credit early. So it will not be there to help lower any taxes owed when you file.
According to the IRS website, "If you receive a total amount of advance Child Tax Credit payments that exceeds the amount of Child Tax Credit that you can properly claim on your 2021 tax year, you may need to repay to the IRS some or all of that excess payment."
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Takeaway On Child Tax Credit:
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As you can see, they do expect some taxpayers will have to pay back some or all of the credit. For that reason, it is wise to save some money. At least until it is determined that you will not need to pay it back in 2022.
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