ATLANTA — More than 36 million families received their final advance payment for the US child tax credit in December. And while Congress debates on whether members will reauthorize payments, there are still questions surrounding the funds people already received.
Mainly, will parents have to pay any of the money back? It depends.
The payment is simply the tax credit qualifying parents would normally receive as part of their refund each year. It has been this way since the child tax credit was establish in 1997. But in 2021, instead of waiting to get the money once as part of the refund, Congress allowed the money to be given in advance.
But, the amount parents are supposed to receive is determined by income taxes and child circumstances. Since the tax credit is based on 2019 and 2020 tax returns, some people may get overpaid or receive money that is not meant for them. In those cases, the money would need to be repaid.
Here are the four circumstances:
Higher income
If a parent made more money in 2021 to the point they are no longer eligible, that parent will have to return the overpayment.
For a quick reference, families with less than $75,000 for single, $112,500 for head of household, or $150,000 for joint returns are eligible for $3,600 for children under 6 and $3,000 for children under 18.
If a parent filing single made $75,000 in 2020, but $90,000 in 2021, that parent would need to repay some or all of the overpayment they received when filing 2021 tax returns.
There is wiggle room or repayment protection for lower and moderate-income taxpayers.
Families with 2021 modified adjusted gross incomes at or below $40,000 on a single return, $50,000 on a head-of-household return and $60,000 on a joint return may keep the overpayment.
Custody/dependent changes
If custody or marital changes happened in 2021, then a parent may receive money they shouldn’t (or didn't receive money they're eligible for.)
If a child lives with a parent less than half of the year, the parent is not eligible to receive the credit. If dependents changed in 2021 compared to 2020, that could also result in an overpayment.
As an example, if Parent A claimed their child in 2020, but Parent B will claim the child in 2021 (common arrangement in divorce proceedings) then Parent A will receive money for the child, even though it was supposed to be paid to Parent B. In this case, Parent A would need to return the overpayment and Parent B would get the credit after filing their 2021 tax return.
Another example: If Parent A claimed two children as dependents in 2020, but Parent B will claim one of the two children in 2021. Parent A may have received money for both children and would have to repay some or all the money for one of the children.
And finally, there is the matter of if a child has aged out. If a child is now 18 (but was 17 in 2020), this could result in an overpayment.
Filing status changed
If a parent’s tax filing status changed, an overpayment can occur. For instance, if the parent changed status from joint to single, this could result in an overpayment.
Change of address
The last instance in which someone might have to repay is if the qualifying parent lived outside the U.S. for more than half the year in 2021.
How to repay?
If the payment was in paper form (check), write VOID on the endorsement section and mail it to the IRS with a written explanation for returning the check. Do not staple, bend or paper clip the check.
If the check was cashed without realizing it was an overpayment or a direct deposit, mail a check or money order payable to “US Treasury,” write “Advance CTC” and social security number on the memo line and include a brief reason for the payment.
If someone wants to wait until they file their taxes, they will need to report the overpayment on the 2021 tax return as additional income. This will either reduce the amount on the tax refund or increase the total taxes due for 2021.