When you receive “free” money, you may wonder if there’s a catch. For some who received the November advance payment of the Child Tax Credit, there could be. If your income was substantially larger in 2021 than it was in 2019 or 2020, you could have to pay a portion of your CTC advance payments back to the Internal Revenue Service.
Fortunately, you have some time to figure it out and to return the funds. Also, the overpayments will be added to your tax bill or decrease the amount of your refund, according to the IRS website.
How will you know if you will need to repay all or part of your advance CTC payments? It all depends on your taxable income for 2021.
To qualify for full payments, you just make under $112,500 as head of household or $150,000 for married couples filing jointly. If your 2021 income exceeds that threshold, you may need to return a portion of the tax credit.
However, if you’re making under $40,000 per year, you don’t need to pay back any overpaid credits. Single filers making between $40,000 and $80,000 may need to pay back a portion of the overpayment. Married couples filing jointly are exempt from returning overages if they make under $60,000. Those making between $60,000 and $120,000 may need to return a portion of the payments. Those who file as head of household are exempt from returning overpayments if they make less than $50,000, while those making between $50,000 and $100,000 will need to return a portion.
If you are unsure about your income for 2021, you can opt out of the final payment, to be issued Dec. 15, 2021. If it turns out you were eligible to receive that money, you will receive it as a fully refundable tax credit on your 2021 tax returns. Log into the Child Tax Credit Update Portal by Nov. 29, 2021, to opt out before the final payment is issued.
The advance CTC, along with income fluctuations between 2020 and 2021, could make taxes more complicated for many Americans. It pays to consult with a tax professional before filing your 2021 returns, especially if you had dramatic income variations or a change in filing status between 2020 and this year.
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This article originally appeared on GOBankingRates.com: Stimulus Update: Your November Child Tax Credit May Need to be Paid Back – Here’s Why