You may be one of those parents who gets thrilled when their bank hits monthly child tax credit payment. This is the first time when legislators beefed up the tax refunds in such a way that it could help instantly, especially the needy American citizens who lost their regular income due to pandemics.
These monthly payments are tax refunds from your taxes filed for the year 2020. The IRS has scheduled half of your child tax credit payments to be delivered to your bank accounts on the 15th of every month. Families have already received two payments and are expecting to receive the third on Sept 15th.
What should you look for next year?
Possibly the advance payments could unveil some unwelcoming surprises in your tax returns that you would be submitting next year. This is why households are looking forward to availing themselves of the options of opting out from the plan via the IRS portal to receive the amounts for CTC together, as they were normally paid.
It is important to note here that the payments are based on the income situation of a household in 2019-2020 along with the household size. Therefore, parents with altered family situations may receive a smaller amount when filing their 2021 taxes. With the tax filing, they will receive the other half payment of their child tax credit.
On the other hand, on filing your tax returns next year if the IRS will find that your tax information has changed due to the change in your monthly earning, a potential increase or decrease in the number of dependents, you may have to repay the additional tax refund amount you received throughout the year between July and December.
To prevent this from happening, you must update your tax information, household details, and income information through the IRS update portal online. The IRS has designated a Child tax credit portal online for updating the information about your tax and households.
What if you don’t want to receive monthly advance payments?
IRS has been using the monthly advance payments in terms of a tax refund as a Child tax credit amount which is $300 per child under 6 years of age and $250 for children under 17 y/o. These advance payments will be continued till Dec 15th this year and people are foreseeing this to be continued after that as well. But for now, half Child Tax Credit Payments are subject to be issued when you will file your tax returns for 2020-2021 the next year.
If you are eligible to get these payments and you want to receive the payments from the IRS as they were scheduled before, you can opt-out by unenrolling yourself from the plan through the IRS online portal.
Do you owe the IRS for these advance payments?
The quick answer to the question is no. These advance payments do not fall under debt from the IRS. For this, you just need to know some important details.
Child tax credit amounts are not counted as your income, therefore; you don’t need to file income tax on these checks. This means that you are getting these payments in advance rather than waiting for them to receive them when you file your returns.
While these payments are not tax payable, you may still need to repay the IRS when you file your tax returns in 2022.
What if you receive more money than you should?
Certainly, there are scenarios where you can receive more payments, and then you need to repay the IRS later. If for whatever reason child tax credit money that you receive was more than you qualify for, the IRS will get to know about it when you file your taxes in 2022 to receive the remaining payments. There you may have the option to adjust the extra amount from your remaining payments or return it.
There could be the following cases where you would receive extra payments:
- If anyone from your household has ended up getting a higher paying job this year, which automatically increased the AGI – adjusted gross income. With this adjustment, the increased income will push you out or above the previous bracket.
- If any of your dependent family members are aging in or out of the required bracket. For instance, if your 17-year-old child is turning 18 this year, then he will disqualify you from receiving monthly payments. Similarly, if the child is turning 6, will make you eligible to get $300 monthly payments in your bank account.
- You can also receive higher payments if there’s a change in child custody. For instance, if divorced parents arrange joint custody for their children to get the refund alternatively, and the custody arrangement changes. One child can be claimed once by a parent to receive credits.
- If you lived in the US in 2020 for more than a half year but the address changes in 2021, you will no longer be eligible to get payments.
Due to some of these circumstances, the IRS has opened its portal for people to opt-out or withdraw receiving advance payments so they can prevent themselves from repaying.