Next week, millions of families across the country will begin to receive monthly checks from the federal government when advance child tax credit (CTC) payments begin to hit bank accounts.
Many families already have big plans for those payments, worth up to $3,600, or $300 per month, for each qualifying dependent under 6, and $3,000, or $250 per month, for each dependent aged 6 to 17. But they should be aware that they could also affect their 2021 tax bill in a few ways.
For one, the six payments being made through the end of the year are advances of the credit, worth half of the full amount that parents will ultimately receive. When a parent files their 2021 tax return, he or she will claim the rest in a lump sum.
The credit is refundable, which means that if a taxpayer doesn't owe taxes, or owes less than the lump sum amount, they will receive the rest of the value of the credit in their tax refund.
You may have to repay the credit next tax season
But parents could also owe some of the tax credit back next year, since the IRS is basing the value of the advance payments off of 2020 tax information in most cases. If a child turns turn 6 or 18 in 2021, the family would qualify for a lesser tax credit in the case of the child turning 6, or no credit if he or she turns 18, for example.
Household income might also increase this year relative to last year, making parents ineligible for the payments, or eligible for a lesser amount. The payments start to phase out for individuals earning an adjusted gross income over $75,000, and married taxpayers (and widows/widowers) filing jointly earning over $150,000.
Taxpayers who receive more money than they are eligible for will report the excess amount on their 2021 tax return as additional income tax, reducing their tax refund or increasing how much they owe the IRS. If taxpayers owe, the IRS has said it can work out an installment payment plan with them. It is also waiving repayment obligations in some cases.
The agency will send taxpayers a form in January 2022 detailing how much was disbursed to them during 2021.
To avoid repaying the credit, taxpayers can update their personal information — including changes in the number of qualifying children you have, income and filing status — with the IRS through the agency's Child Tax Credit Update Portal. Taxpayers can make changes throughout the rest of 2021.
Parents can also opt out all together using the portal. For those who are married and filing jointly, both spouses must unenroll. Below is the schedule of the last day to unenroll each month.
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Don't miss: The first advance child tax credit arrives this month. Here's everything you need to know
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