Unlike with stimulus money, households that receive too much advance child tax credit money may have to pay it back to the IRS.
Sarah Tew/CNET

Not every family knows the details about the expanded child tax credit payments or how the credit works differently this year. Luckily, a bunch of resources, fact sheets and tools are now available to parents to check their eligibility and more. As many as 92% of all families with children in the US could receive their first automatic advance payment on July 15 and continue to receive up to $300 per month for each kid until the end of 2021.

But what happens when you file your 2021 income tax return next year? The IRS bases eligibility and the credit amount on your household’s 2019 or 2020 tax return, and we know plenty can change between tax seasons. One way to guarantee that a tax adjustment doesn’t result in owing money back to the IRS is to update your info through the new tools.

We’ll explain the math and how to prepare ahead of time to avoid possible overpayment. Also, there are important things non-tax filer families should know about the credit so they can register for payments. There are also ways toestimate how much money you could get in all and three quick ways to know if your family qualifies.

Will you need to pay taxes on this year’s advance child tax credit money?

The short answer is no, but there are some financial details you still need. Child tax credit checks don’t count as income, so you won’t have to pay income taxes on the payments, Mark Jaeger, vice president of tax operations at TaxAct, told CNET.

The IRS refers to these checks as “advance” payments ahead of 2021 tax season. “That means you’re simply getting the payments sooner rather than waiting to receive that money when you file,” Jaeger said.

While you won’t pay taxes in 2022 on the payments you receive this year, you still may need to repay the IRS some part of the “advance” payment when you file your income tax return in 2022.

Will you need to report your 2021 payments on next year’s tax return?

Yes. In January 2022, the IRS will send families that received child tax credit payments a letter with the total amount of money they got in 2021. Hold on to this notice — which the IRS is calling Letter 6419 — you’ll need information from it when you file your 2021 tax return during next year’s tax season. (This is not the same letter that the IRS is sending this year about the payments.)

To make sure the IRS has your most recent mailing address, you’ll be able to update it through the Child Tax Credit Update Portal in coming months, the IRS said. You can also change your address through the Postal Service.

Will you have to pay your child tax credit money back?

Maybe. Unless you unenroll, or opt out, of the monthly child tax credit payments, you’ll automatically get half of your estimated amount this year from the IRS. Foregoing the monthly payments means that instead of receiving seven smaller installments — six in 2021 and one in 2022 — you will simply collect one large payout when you file your taxes in 2022.

If for whatever reason you wind up getting paid more than you actually qualify for, you may need to repay some of the money. That could be the case if someone in your household ends up getting a better paying job that pushes you out of your prior income bracket, or if one of your dependents ages out of an age bracket.

Those kinds of changes in circumstances are one major reason why the IRS is giving folks the option of opting out of the advance payments. To reduce the chance you receive an overpayment this year, you will soon be able to update the IRS with your current family status using the child tax credit portal (those update categories on the portal aren’t yet available). You should continue to keep the IRS up to date with family changes through the end of 2021.

It’s important to know that if the household’s adjusted gross income, or AGI, for 2021 is below a set income level, you likely won’t owe the IRS anything, even if you received more child tax credit money than you technically should have. Above this income level, the amount you need to repay increases, or phases in, until you owe a full repayment above a set cap.

This is what the IRS calls “repayment protection” so that lower-income families won’t be on the hook to repay money.

Income caps for repaying child tax credit payments

Filing status

Qualify for full repayment protection

Repayment protection phases out

Single filer

Up to $40,000

Over $80,000

Filing as head of household

Up to $50,000

Over $100,000

Married filing a joint return

Up to $60,000

Over $120,000

The letter the IRS sends you in January will help you determine if you received an overpayment and if you need to repay all or part of the advance payments.

Could you be owed more child tax credit money in 2022 after filing your taxes?

Yes. After you compare the information on the letter the IRS sends you in January 2022 with what you are eligible for, you may discover you are due more than you received in advance payments, based on your actual 2021 income. If that is the case, you can claim the remaining amount of your child tax credit when you file your return.

If you qualify, you can get monthly payments starting in July.
Sarah Tew/CNET

Will the child tax credit affect other federal benefits?

According to the IRS, no. Because the advance child tax credit payments don’t count as income, federal, state or local agencies can’t use the amount when determining if you or your family is eligible for other benefits or assistance.

For more financial benefits this year, here’s how to save money on child care costs and health care expenses.

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