This tax season, millions of American families who received advance child tax credit payments are calculating what they got in order to submit their 2021 returns.
Some may be worried that they were sent more money than they were owed in the monthly payments from July to December, either due to income increasing in 2021 or incorrectly claiming a child that wasn’t eligible.
Luckily, many won’t have to repay any of the benefit.
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Details of the enhanced credit
The expanded child tax credit was part of the American Rescue Plan, signed by President Joe Biden last year. For the 2021 tax year, the credit increased to $3,000 from $2,000 for dependents ages 17 and younger. It also gives an additional $600 for children under the age of 6.
The full enhanced credit is available to all eligible children in families with adjusted gross income of less than $75,000 for single parents and $150,000 for a married couple filing jointly. It ends for individuals earning $95,000 and married couples filing jointly making $170,000, though they’d still be eligible for the regular child tax credit.
Most families got the first half of the credit in advance monthly payments from July to December, and now must file 2021 tax returns to claim the second part of the benefit.
“There will be a reconciliation,” said Trenda Hackett, CPA and technical tax editor of the tax and accounting business at Thomson Reuters. “There could be some instances where your payment was in excess of what you were actually allowed on your tax return.”
Who is fully protected
Many families are eligible for some form of repayment protection in place at the IRS that would shield them from a bill even if they were overpaid in monthly child tax credit checks.
Those married and filing jointly or filing as a qualified widow will be fully protected from repayment if their 2021 adjusted gross income is $60,000 or less. For those filing as head of household, the threshold is $50,000 and for those who are single filers or married and filing separate returns, it is $40,000.
Taxpayers who made more than those adjusted gross income amounts may still be able to get partial protection from repayment if they got too much through the advance child tax credit last year.
Repayment protection ends when 2021 income hits $120,000 for those married filing jointly or widowers, $100,000 for heads of household and $80,000 for single filers or those who are married and filing separately.
In addition, to qualify for this protection, filers must have had their main home in the U.S. for more than half of 2021.
A lower refund if you do owe
Even if you did receive more of the child tax credit than you were eligible for last year and don’t qualify for repayment protection, you may not owe the IRS.
Instead, it’s likely that you’ll get a much smaller tax refund than you’re used to, either because you aren’t eligible for the second half of the credit or you’re getting less than you thought you would.
If the remaining credit you’re able to claim doesn’t offset your tax liability, you may have a bill from the IRS.
To make sure you get the right amount of the credit back, families who got the benefit should look out for Letter 6419 from the IRS. This letter will help them reconcile what they received last year and claim the correct amount this year. If the letter is incorrect or you didn’t receive it, you can use the information available on the agency’s online portal to show what payments you got.
The IRS also recommends that people file electronically this year and select to have any refunds direct deposited to avoid any delays in processing.
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