Child tax credit payments began hitting accounts in July. This monthly cash payment will be a great help to many American families, but the conversation around how they will impact 2021 tax filings (because it’s an advance payment) hasn’t been at the forefront.
In an effort to keep families from waiting to claim their credits on their tax returns, which are delayed, Congress gave the IRS permission to use existing records (from 2020 and sometimes even 2019 🤭) to qualify recipients to receive their tax credits now. If a family has experienced an increase in income since then, there’s a chance they could be expected to pay back some, or even all of the tax credit they’ve received on their 2021 tax returns.
People should be aware that there’s potential to receive smaller refunds or possibly a tax bill since these credits are considered upfront payments.
Sound too risky? Well, you can opt out of the pre-payments and choose to have your credits applied as normal on your return. The credits are large, dollar-for-dollar tax offsets which could easily invite extra stress (and bills 👀) into your life during tax time.
Speak with your financial advisor or CPA to determine the best route based on your specific situation. You can check your eligibility and manage your payments on the IRS website.