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What You Need to Know About the Effects of Child Tax Credit Payments on Your Taxes |Viral News

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Although the April 18 deadline for filing federal income taxes is still a few months away, tax experts are recommending taxpayers to file early and electronically with direct deposit in light of an exceptionally difficult tax season. The enhanced child tax credit, for which the majority of families received advance payments in 2021, is one of the issues this year.

If you received a letter from the IRS confirming receipt of your child tax credit, you should be able to determine the impact of last year’s advance payments on your taxes this year. If you did not get or tossed away the letter, do not fret; all of the information may be accessed through an online IRS account.

Monthly payments made last year were calculated using either your 2019 or 2020 tax return. However, if your personal circumstances have altered since you last filed, an overpayment may have occurred. For example, if your income increased after you filed your 2020 taxes or if your child moved out of a tax bracket, you may owe money to the IRS when your 2021 return is adjusted.

While this may appear complex, the IRS has materials available to assist you in determining your eligibility. Additionally, you’ll want to verify that all of the information on your child tax credit letter is accurate. This story was updated recently.

What You Need to Know About the Effects of Child Tax Credit Payments on Your Taxes |Viral News

Will I Owe the Irs Money for the Child Tax Credit Checks I Received Last Year?

The quick answer is no, but you do need to be familiar with certain financial specifics. Because the child tax credit cheques are not considered income, you will not be required to pay income tax on them, according to Mark Jaeger, vice president of tax operations at TaxAct. These cheques were referred to by the IRS as “advance” payments made in advance of the 2021 tax season: “This just implies that you’re receiving funds sooner rather than waiting until you file.”

While you will not be required to pay taxes on payments received in 2021, you may be required to repay the IRS a portion of the advance payment when you complete your income tax return in 2022. We’ll explain further down.

Read More: Frequently Asked Questions: What Is the Impact of Early Child Tax Credit Payments on the Tax Season? |Complete Info!

Will I Be Required to Refund Money if I Received More Than I Was Entitled to?

Maybe. Unless you opted out of receiving monthly child tax credit payments, you should have received from the IRS half of your expected amount in 2021. By foregoing monthly payments, you will receive your money when you file your 2021 tax return, rather than in smaller increments between July and December of last year.

If you receive more child tax credit money than you qualify for due to outdated household information, you may be required to reimburse some of the money to the IRS. This may be the case in the following circumstances:

If one of your dependents crossed an age threshold last year. For instance, if your five-year-old turns six in 2021, you will qualify for a lower payment. Alternatively, if your 17-year-old turns 18 in 2021, you may lose eligibility for the money you received.
If custody is changed. Two examples are when parents divorce and share custody, or when the parent with custody changes from year to year. In a joint custody arrangement, only one parent has the right to claim credit for a particular child.
If your primary residence was in the United States for more than half of 2020 but not in 2021, you would lose eligibility for payments.
These types of changes in circumstances are a significant reason why the IRS provided individuals with the option to opt-out of advance payments.

Read More: The Child Tax Credit for 2021: When Will You Get Your $1,800 Payments in 2022?

What Income Do Limits Apply to the Repayment of Child Tax Credit Funds?

Though your household’s adjusted gross income, or AGI, for 2021 was less than a specified income level, you are unlikely to repay the IRS anything, even if you technically received more child tax credit money than you should have. This is what the IRS refers to as “repayment protection,” which ensures that low-income households will not be required to refund any money. When your income exceeds a specific threshold, the amount you must repay grows or phases in gradually until you owe the whole amount.

The IRS letter issued between December 2021 and January 2022 can assist you in determining whether you received an overpayment and whether you are required to reimburse all or a portion of the advance payments. See below for additional information on that letter.

What You Need to Know About the Effects of Child Tax Credit Payments on Your Taxes |Viral News

Will I Be Required to Submit My Complete Child Tax Credit Payments This Year When I File My Taxes?

Yes. Between December 2021 and this January, the IRS mailed a letter to families who received child tax credit payments informing them of the total amount received in 2021. Keep this notice – which the IRS is referring to as Letter 6419 – since you will require information from it when filing your 2021 tax return.

To ensure that the IRS knows your most current postal address, you can use the Child Tax Credit Update Portal to update it. Additionally, you can update your address with the Postal Service.

Read More: Repaying Your Child Tax Credit in 2021? Here Are 4 Reasons Why You Might Have to Pay It Back.

Will the Remainder of My Child Tax Credit Funds Be Sent Into My Bank Account Together With My Tax Refund?

Yes. After comparing the information on the IRS letter to what you’re qualified for, you may discover that you’re owed more than the advance payments you got, based on your real 2021 income. If this is the case, you may claim the remainder of your child tax credit on your return.

Does the Amount of the Child Tax Credit Influence the Amount of Other Federal Benefits I Receive?

No, according to the IRS. Because the advance child tax credit payments are not considered income, federal, state, and local governments cannot use them to determine whether you or your family is eligible for further benefits or assistance.

Read More: Everything You Need to Know About the 2022 Expanded Child Tax Credit

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