The Child Tax Credit payments that were given out in advance last year have now officially ended. Despite the fact that low- to moderate-income parents across the country had grown accustomed to receiving early tax payments in their bank accounts and mailboxes each month, lawmakers chose to let the program expire without reaching an agreement on a 2022 extension.
Millions of families may struggle to make ends meet in the coming year as a result of this. After all, money from the increased Child Tax Credit program provided significant benefits to families.
It not only assist parents in paying bills, stocking pantries, and purchasing other necessities, but it also lifted millions of families out of poverty, if only for a short time. As a result, the loss of these financial benefits will be difficult for many households.
And it’s possible that additional hits are on the way for some homes. In other situations, families will be responsible for repaying the money they received for advanced tax credits last year.
This might make it even more difficult for low-income households to make ends meet. Are you unsure if you’ll have to pay back the tax credit money you received in 2021? When you file your taxes this year, you may be compelled to reimburse the advance Child Tax Credit money for four reasons.
In 2021, your earnings increased.
If your income increased significantly between 2020 and 2021, you may be required to repay some or all of the monthly tax credit payments made from July to December of the previous year.
Because the monthly payouts had income requirements to qualify, this was the case. The full monthly payments were available to single taxpayers earning $75,000 or less, heads of household earning $112,500 or less, and joint filers earning $150,000 or less. Your Child Tax Credit payments were either lowered or canceled if your income surpassed the maximum limit.
However, because 2021 tax returns aren’t due until later this spring, the IRS had no way of knowing what last year’s income will be. As a result, eligibility was determined using Americans’ tax returns from 2020 and 2019.
This could present problems for households whose salaries climbed dramatically between 2020 and 2021. For example, in 2020, a household with a combined income of $144,000 would have been immediately eligible for the monthly tax credit payments. However, if that same household’s earnings grew to $180,000 in 2021, they would exceed the maximum threshold and be eligible for the full benefits. As a result, when they file their taxes, they will have to repay some of the tax credit.
Your legal standing has changed.
A change in your filing status could potentially have resulted in an overpayment, requiring you to repay some or all of the tax credit when you file your taxes later this year.
As an example, suppose you were married in 2020 but divorced in early 2021. As a result, your filing status changed from a joint filer with a $128,000 household income to a single filer with a $94,000 income.
You can have a maximum income of $75,000 as a single filer to qualify for the full payouts, therefore your single income of $94,000 would mean that your income exceeds the requirements to receive the full amounts. As a result, you’ll have to repay some of the funds you received in 2021.
The custody arrangement for your child has changed.
Custody arrangements can vary, and if your child’s custody arrangement was changed from 2020 to 2021, you may be responsible for repaying some or all of the Child Tax Credit payments you got the previous year.
Consider the case where you received the maximum amount of monthly tax credit payments for your adolescent child. However, your child’s custody arrangement changed in 2021, and they now only reside with you during the summers.
According to the payment requirements, if a child resides with a parent for less than half of the year, the parent is not eligible for the Child Tax Credit. That implies you’ll have to repay some or all of the money you received as a tax credit advance.
The same might be said for parents who will be unable to claim their child on their tax returns in 2021. When it comes to reporting their child on their tax returns, it’s rather normal for parents who share custody to switch off, with one parent claiming the child one year and the other parent claiming the child the following.
You may be caught repaying the tax credit money you’ve already got if you claimed your child in 2020 but the other parent claims them in 2021.
You relocated to another country.
Another criterion for getting the Child Tax Credit is that you spent more than half of the year in the United States. If you moved out of the nation and spent more than half of the year outside of the United States, you will almost certainly have to repay any Child Tax Credit money you received in 2021.
What am I supposed to do with the money I got from the Child Tax Credit?
The good news is that reimbursing yourself for an overpayment of a tax credit is a simple process. In most situations, you can report the overpayment to the IRS when you file your taxes, which you will do as additional income.
When you disclose this additional income, it will either reduce the amount of money you receive on your tax return or increase the amount you owe to the IRS in 2021 taxes. If you owe the money as part of a tax payment, you can simply pay it back using one of the IRS’s recognised payment methods.