The Child Tax Credit payments are an advance against the 2021 tax returns that you will file only in 2022. This monthly payment through the New Federal Enhance Child Tax Credit is set to start on July 15, 2021. The payments will go to close to 39 million covering roughly 90% of children in the US, according to the IRS.
The CTC payments are part of the American Rescue Plan signed back in March 2021. If you qualify for the payments based on your income, you will automatically get half of the total amount eligible in monthly payments of between $250 and $300. The rest 50% will come in against the 2021 tax returns to be filed in 2022.
How Will The CTC Payments Affect Your 2021 Taxes?
So what are the implications of taking advance payment for people whose income is above a certain level? Since the Child Tax Credit payments are not income like the stimulus checks, you will not be required to pay tax against it.
But there are two ways you might have to repay the money on your tax returns next year. The first is if you are overpaid in Child Tax Credits. The second is if an improvement in your financial situation in 2021 causes you to owe more on your income tax from 2021.
One way of ensuring that you do not have to pay the credit back is updating your personal information on the online portal that the IRS has deployed.
Since the payments are an advance against your 2021 tax returns, you are getting it earlier because of the economic downturn. You will receive a note from the IRS detailing the amount you have received in advance against the Child Tax Credit.
Letter 6419 will contain information that you will require to file your income tax returns for 2021. So you need to hold on to the letter when you receive it at the beginning of next year.
Be sure to update your latest mailing address using the Child Tax Credit Update Portal. You need to also update your postal address with the US postal service.
Is There A Possibility Of Repaying Part Of The Child Tax Credit Payment?
One of the newly uploaded IRS portals gives you the option to un-enroll from the monthly installment of the CTC payments. It is a one-time option and you will be able to re-enroll starting in late September 2021.
The ‘re-payment protection’ allows you to get off the liability of repayment if you are under the lower-income category. The repayment protection phased out for income over $80,000 for individuals, $100,000 for a head of household, and $120,000 for a married couple filing jointly.
You may claim your due amount from the Child Tax Credit against your 2021 tax returns.