WEST DES MOINES, IA (WHO) — In 2021, parents had the option to receive an advance of half of their child tax credit in monthly payments. The final credit was delivered in December. Soon those families will find out in a letter if they owe any or all of that money back to the IRS.
Brian Newton, a shareholder and CPA at McGowen, Hurst, Clark & Smith in West Des Moines, Iowa, said the monthly payments were essentially an advance on dollars you would have received in your 2021 tax refund.
“If you had a sizeable refund last year and that was largely attributed to the child tax credit, and you received advanced payments throughout the year, your refund is likely going to be less than it was in prior years,” he said.
Newton said throughout the course of the year, the IRS sent out advance child tax credit payments through the American Rescue Plan.
Amounts varied depending on household income and the age and number of children a family had. Some families could get up to $3,600 annually per child. Those payments were based on information from 2020. If your 2021 tax forms end up showing a significant rise in income or fewer dependents, you may be paying portions or all of your monthly credits back.
Newton also said it is important to wait to file your taxes until after you receive a letter from the IRS detailing the amount of advance child tax credit payments received and information vital for your tax return.
“They will reconcile the math on the credits when they process your return, so if you don’t have the information in there, they may hold up your return,” Newton said.
The letter is expected to arrive in the mail in late January.
Families that received monthly credits but added children in 2021 should receive additional credit on their refund. For more information on the child tax credit letter, head to irs.gov