One parent posting on Twitter wrote, “My wife and I made just [$50,000] last year and the IRS page said we are not eligible for tax credit of our kids,” adding that “they are 5 and 4 years old.”
Understandably, there is a lot of confusion around the child tax credit payments. The rules are complicated. Hopefully, the following answers will clear up some of the concerns you may have.
Frequently Asked Questions
We have five children — 17, 11, 9, 7 and 5. We received a $1,000 child tax credit payment. Shouldn’t we have received $1,300? We make under $150,000 a year.
Let’s walk through the numbers and why you probably received less than you anticipated.
If you qualify for the maximum advance child tax credit, you would have received $250 for each child from 6 to 17. Each child 5 and under is eligible for $300.
Typically, the child tax credit age cutoff is 16. But just for 2021, the age was extended to 17. What seems to be tripping up a lot of families is this: If a child turns 18 this year, he or she ages out of being eligible for a payment.
A similar issue involves 5-year-olds who turn 6 this year. He or she will be counted as a 6-year-old, and as a result, the payment is calculated on that basis.
So, in this case, the couple’s payment is $250 for each of the eligible children — including the 5-year-old turning 6 and not including the 17-year-old turning 18 — for a total of $1,000.
My husband won’t cash our kids’ child tax credit check, because he says we might have to pay the IRS back. Will we have to pay this money back?
If you think you will be overpaid, you can opt out of receiving the payments rather than holding on to the money. The IRS has created the Child Tax Credit Update Portal, which allows people to tell the IRS they don’t want the advance payments.
During a recent online discussion, Ken Corbin, the IRS’s wage and investment commissioner and its chief taxpayer experience officer, addressed folks’ concern about being overpaid.
“You may avoid owing tax to the IRS if you adjust your withholding or unenroll and claim the entire credit when you file your 2021 tax return,” Corbin said.
Is there any protection for lower-income parents against having to pay back overpaid credits if their financial or family circumstances change during 2021?
Stay with me on this explanation. It’s important you understand who will and who won’t have to pay back any overpayment for the advance child tax credit.
The child tax credit payments being distributed for the next six months are technically an advance on what people will claim on their 2021 tax return due next year. Half of the credit is being distributed this year in monthly installments.
Since the IRS doesn’t yet have 2021 returns and thus can’t be certain of people’s income or the number of children they’re eligible to claim for the credit, the agency is using people’s 2019 or 2020 tax returns. It’s also going on information people provided in the IRS online non-filers tool.
Once they file their 2021 returns next year, some families may find that they received too much money. This additional income might result in a lower refund or an increase in the taxes they owe for 2021.
When you file your 2021 tax return, you will need to compare the amount of the advance child tax credit payments you received with the actual credit allowed. Most families will get the remaining credit due. But some will find they were overpaid and may have to repay some or all of the money to the IRS.
In January, the IRS will send “Letter 6419” indicating the total amount of advance child tax credit that was disbursed.
With people’s incomes fluctuating so much because of the pandemic, and perhaps due to a shift in who can claim a child, the American Rescue Plan, which authorized the monthly child tax credit payments, includes a provision to prevent lower-income households from getting a surprise tax bill next year.
You can qualify for full repayment protection if your modified adjusted gross income (AGI) for 2021 is at or below $40,000 for a single filer or married couples filing a separate return. The cutoff is $50,000 if you are filing as head of household and $60,000 if you are married and filing a joint return or filing as a qualifying widow or widower.
We have a toddler, and I got into the portal and opted out. However, I saw a message that I had opted out of only half of the payment. Does my spouse have to opt out too?
“In a married filing joint situation when one spouse unenrolls, the other spouse must unenroll to stop the payments,” Corbin said. “If one spouse doesn’t unenroll by Aug. 2, they will get half of the joint payment.”
Will these payments count against me for federal benefits such as Supplemental Security Income (SSI)?
“The advance child tax credit payments cannot be counted as income when determining if you or anyone else is eligible for benefits or assistance, or how much you or anyone else can receive, under any federal program or under any state or local program financed in whole or in part with federal funds,” Corbin said.
He added that these programs also cannot count the payments as a resource for purposes of determining eligibility for at least 12 months after you receive it. If this has happened, you should contact the agency issuing your benefits, he said.
You should also know that the payments are reported as income on your 2021 tax return.
We haven’t filed any return with our child on it yet. When can I use the online portal to add a child?
The IRS says later this year the portal will add a feature to allow you to inform the agency about any qualifying children. And the good news is you’ll receive increased monthly payments for previous months after you sign up.
The IRS is hosting events this weekend in select cities to help people sign up for the advance credit. For information about the free events go to irs.gov.
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