If your income goes up this year, you might be eligible for less of the child tax credit than originally estimated.
Sarah Tew/CNET

The 2021 expanded child tax credit has changed from past years. For instance, children under age 6 now qualify for $3,600 instead of the previous $2,000. And now families will automatically get the first half of the credit in advance monthly installments from July to December (unless they opt out and choose to receive the full credit when they file their taxes in 2022). But how will these advance monthly payments this year affect next year’s taxes overall?

The IRS bases your monthly payment amount on your household’s 2019 or 2020 tax return. Of course, there’s plenty that could change between tax seasons — for instance, a pay increase or a dependent aging out of an eligibility bracket — that could result in owing money to the IRS when an adjustment is made next year. One way to prevent that from happening is to take steps this year to update your household details online. You can soon use a portal designated for the child tax credit to do so.

With so many changes, it can get confusing fast, but the IRS has resources to help you check your eligibility, opt out of the monthly checks and more. We’ll explain how to estimate how much money you’ll get, how you can prepare now to avoid having to pay the IRS later, and what non-tax-filing parents should know about the credit so they can register for payments. You can also see if your family qualifies before payments begin July 15. This story was recently updated.

Do I have to pay taxes on my 2021 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 I have to pay the IRS back for my child tax credit money?

Maybe. Unless you unenroll from or opt out of the monthly child tax credit payments, you’ll automatically get half of your estimated amount this year from the IRS. Forgoing 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 more child tax credit money than you actually qualify for, you may need to repay some of the money to the IRS next year. That could be the case in the following scenarios:

If someone in your household ends up getting a better paying job this year, increasing your adjusted gross income and pushing you above or out of a previous income bracket. If one of your dependents ages out of an age bracket sometime this year. For example, if your 5-year-old turns 6 in 2021, that would qualify you for a smaller payment. Or if your 17-year-old turns 18 in 2021, you would no longer be eligible for the monthly payments. If there is a change in custody. Two examples: if parents divorce and have a shared custody arrangement, or if the parent with custody changes from one year to the next. In a joint custody situation, only one parent can claim the credit for a given child.

Those kinds of changes in circumstances are one major reason why the IRS is giving folks the chance to opt 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. (The update categories for marital status, dependents and income aren’t yet available, but they will be later this summer.) 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. This is what the IRS calls “repayment protection” so that lower-income families won’t be on the hook to repay money. Above a certain income level, the amount you need to repay increases, or phases in, until you owe a full repayment.

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.

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

Will I need to report payments when I file taxes in 2022?

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.

Child tax credit payments start July 15 for 92% of U.S. families with children.
Sarah Tew/CNET

Could I qualify for more child tax credit money in 2022 after filing 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.

Will my child tax credit money affect other federal benefits I receive?

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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