Tax Season

do parents have to pay back the child tax credit? Parents are looking at their taxes extra closely t...
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Do You Have To Pay Back The Child Tax Credit?

Weighing your options.

by Caroline Farhat

Many rumors have circulated around the child tax credit this year. In 2021, advance payments were made on the credit, providing half of the credit in monthly payments from July to December 2021. Just to add to the confusion, the credit amount is now based on the child’s age and covers children up to age 17, as opposed to a flat rate for every child 16 and younger. With all these changes it’s easy to overlook the fact that the credit was increased, presumably putting more money in your pocket. But with all these changes and the advance payments made, many are left wondering: do you have to pay back the child tax credit?. Keep reading to find out how the child tax credit will affect you when filing in 2022.

Do I have to pay back the child tax credit?

In most instances you will not have to pay back the child tax credit. In fact, if your circumstances from 2020 to 2021 did not significantly change, you will most likely be able to claim the other half of the credit on your 2021 tax return. Previously, the child tax credit was only claimed on your tax return and was either included in your refund or helped reduce the amount of taxes you owed. The change in 2021 occurred when the American Rescue Plan Act of 2021 was enacted on March 11, 2021. As part of the plan, one-half of the credit would be provided to parents in six monthly payments, with the other half being claimed during tax time.

The only reason you have to pay back the child tax credit is if your family or financial circumstances were different in 2021. Here are some scenarios where you may have to pay back the child tax credit:

  • You received money for a child that is no longer a dependent. This can occur if you share custody of your child and alternate claiming the child on your taxes with the other parent.
  • Your income increased where you would not be eligible for the full credit amount.

How do I figure out how much I can claim and/or owe?

The 2021 credit amounts are $3,600 for children under the age of 6 and $3,000 for children ages 6 to 17. If you have multiple children, add the full credit amount for each child to get the amount of credit you are entitled to claim. Compare this with the monthly payments you received and you can see how much more you can claim. If you received more in monthly payments than what you are entitled to claim, you may owe some of the funds back or may not be able to claim the full remaining credit amount.

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For example, if you have one 6-year-old child and received $1,500 in monthly payments you would in most scenarios be able to claim the remaining $1,500 as a credit on your taxes. However, if your income increased above the threshold ($75,000 in adjusted gross income for a single filer and $150,000 for joint filers) you would be eligible for a reduced credit amount on your taxes.

What If I didn't deposit the checks?

If you received a paper check for the advance payments and did not deposit the checks you can return your child tax credit checks by mailing them back to the IRS. There are specific instructions to follow and the location of where to mail the checks depends on your state. However, come filing time, this may cause confusion if IRS Letter 6419 shows you already received half the credit. It’s best to consult with a tax filing expert who can help decide your best course of action that will help you receive your full credit owed.

Can I opt out from receiving the child tax credit?

The monthly advance child tax credit payments ended in December 2021 and no longer require opting out. Although circumstances can change, it has not been decided whether any advance payments will be provided in 2022. If it does occur, there was a process in 2021 to opt out of the monthly checks so you can claim the full credit on your taxes. Previously to opt out of the payments you would go to the IRS website on the Child Tax Credit Update Portal to stop any monthly payments.

The child tax credit in 2021 had many changes and provided relief for some families during the uncertainty of the pandemic. By understanding the changes and knowing what you’re entitled to, you can avoid any unwanted surprises during tax time.