Young Child Tax Credit Payments: How They Impact Your Taxes

This story is part Taxes 2022CNET’s coverage of the best tax software and everything you need to file quickly, accurately and on time.

In a year of major tax changes and complications, expanded child tax credit stands out in particular for its scale — about 30 million filers claiming the credit –– and the fact that half of the money from it has already been distributed to many families through monthly payments in advance in the second half of 2021.

If you received your IRS child tax credit letter, you should be able to calculate the impact of last year’s prepayments on your taxes this year. If you didn’t receive this letter or threw it away, don’t panic – all information can be found with a online IRS account.

Last year’s monthly payments were based on your 2019 or 2020 tax return. However, if your life circumstances have changed since your last return, this could have resulted in an overpayment. For example, if you received an increase in income after you filed your 2020 taxes or your child exceeded the eligibility bracket, you may owe money to the IRS when an adjustment is made to your 2021 return. .

This all sounds confusing, but the IRS has resources to help check your eligibility. You will also want to make sure that all details of your child tax credit letter are correct. Read on to learn all about the Child Tax Credit and how it will impact your tax return and refund this year.

To find out more, inquire CNET’s Best Tax Softwareoptions for file your taxes for free and more deductions and credits that could affect your tax refund this year.

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Child tax credit: everything we know

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Will I owe the IRS money for last year’s child tax credit checks?

The short answer is no, but you still need to know some financial details. Child tax credit checks don’t count as income, so you won’t have to pay tax on the payments, Mark Jaeger, vice president of tax operations at TaxAct, told CNET. The IRS called these checks “instalments” payments ahead of the 2021 tax season: “That means you just get the payments sooner rather than waiting to get that money when you file your return.”

Although you won’t pay taxes this year on payments you receive in 2021, you may still have to repay some of the deposit to the IRS when you file your tax return in 2022. will explain below.

Do I have to return the money if I received more than I was supposed to receive?

May be. Unless you chose to withdraw monthly child tax credit payments, you should have automatically received half of your estimated amount in 2021 from the IRS. Forgoing monthly payments means that instead of receiving smaller payments between July and December of last year, you’ll simply get your money back when you file your 2021 tax return.

If for some reason you end up receiving more child tax credit money than you are actually entitled to due to outdated household details, you may have to refund some of the money to the IRS. This could be the case in the following scenarios:

• If someone in your household got a better-paying job last year, that increases adjusted gross income and pushes you above or out of a previous income bracket.
• If one of your elderly dependents of an age bracket last year. For example, if your 5-year-old turned 6 in 2021, that would entitle you to a lower payment. Or if your 17-year-old turned 18 in 2021, you would no longer be entitled to the amount you received.
• If there’s a changing of the guard. Two examples: if the parents are divorced and have a shared custody arrangement, or if the parent with custody changes from year to year. In one shared custody situationonly one parent can claim the credit for a given child.
• If your primary residence was in the United States for more than half of 2020, but not in 2021, you would no longer be eligible for payments.

These types of changed circumstances are a major reason the IRS has given people the option to opt out of prepayments.

What are the income limits for refunding child tax credit money?

If your household is adjusted gross incomeor AGI, for 2021 was below a set income level, you probably owe nothing to the IRS, even if you received more child tax credit money than you technically should have. This is what the IRS calls “refund protection” so that low-income families don’t have to repay money. Above a certain income level, the amount you must repay increases or scales until you owe full repayment.

The letter sent by the IRS between December 2021 and January 2022 can help you determine if you received an overpayment and whether you should repay all or part of the installments. See below for more information on this letter.

Do I have to report the total of my child tax credit payments on my tax return this year?

Yes. Between December 2021 and January, the IRS sent families who received child tax credit payments a letter with the total amount of money they received in 2021. Save this notice – that the IRS call letter 6419 – because you are going to need information when filing your 2021 tax return.

To ensure that the IRS has your most recent mailing address, you can update it using the Child Tax Credit Update Portal. You can also change your address by post.

Will the rest of my child tax credit arrive with my tax refund?

Yes. After comparing the information on the letter the IRS sent you with what you are entitled to, you may find that you owe more than you received in installments, based on your actual 2021 income. If so, you can claim the remaining amount of your Child Tax Credit when you file your return.

Does child tax credit money affect other federal benefit amounts I receive?

According to the IRS, no. Because child tax credit advance payments do not count as income, federal, state, or local agencies cannot use the amount to determine whether you or your family are eligible for other benefits or assistance.

For more financial benefits this year, here’s how to save money on childcare costs.

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