Many eligible families received monthly stipends in 2021 from the Child Tax Credit. Normally, the Child Tax Credit (CTC) wouldn’t even come up until it was time to file your taxes. Many use the CTC on the tax filing to beef up their income tax return. But this year, some parents who received those monthly checks, which were from up to $1800 for children five years old and under to up to $1500 for children six to 17 years old per month per child, may end up having to pay some or all of that money back to the IRS.
Who Will Have to Pay the IRS?
So, who will end up having to pay back the money? Well, let’s take a look at the tax credit and how it was applied in 2021 to determine the answer. The American Rescue Plan made some changes to the 2021 tax year and how the credit affects you and your family. First, the CTC total amount was raised from $2000 to $3000 per child for children 6 to 17 and $3600 for children 5 and under.
The way this year’s CTC will phase out eligibility is determined by your Adjusted Gross Income (AGI). If your adjusted gross income (AGI) is above $75,000 (single filers), $112,500 (head-of-household filers), or $150,000 (joint filers), then the amount you can receive for the CTC won’t go below the $2000 threshold. However, if your AGI is $200,000 (single filers) or $400,000 (joint filers) you will be phased out of eligibility for the CTC program. However, that part of the plan for 2021 is the same as it was prior to the American Rescue Plan, so it shouldn’t be a surprise to those who already didn’t qualify.
How Were the Child Tax Credit Payments Determined in 2021?
The IRS made its determinations on who would receive payments for the CTC based on information it pulled from your 2020 tax return. So, if little has changed in your AGI then you probably will have little to be concerned about. But if your AGI for 2021 changed substantially, making you ineligible for the CTC, you may have to pay those payments back to the IRS. You had the option to opt-out of those monthly payments if you knew you ahead of time. But if you didn’t opt-out, make sure to plan for the repayment.
Filing Your Taxes With the Child Tax Credit Payouts in 2021
The way it will work for everyone who received payments is when you file your taxes for 2021, you’ll claim the CTC as you normally would. The total amount of your payments from July to December should be subtracted from the total tax credit you’re entitled to. You should then file for the remaining amount. If you received more than you qualify for, you will have to repay the amount you were overpaid.
You have until April 18, 2022, to get your tax return filed. If you have questions about your taxes or need help filing, we’re here to help. You can reach out to us directly to schedule a free consultation. We can take a look at your tax situation and discuss the best options for moving forward.