Stimulus Update: 4 Reasons You May Need to Repay the Child Tax Credit Money You Received in 2021
- Lawmakers have allowed the expanded Child Tax Credit benefits to expire without coming to an agreement on an extension for 2022.
- The loss of these monthly financial benefits could make it tough for some families to stretch their budgets and meet their needs.
- Some households may even be on the hook to repay the Child Tax Credit money they received in 2021 -- which could cause even more issues with their finances.
If you received money for the advance Child Tax Credit in 2021, you may be stuck repaying some or all of the money this tax season. Here are four reasons why.
The advance Child Tax Credit payments that were sent out last year have officially come to an end. While low- to moderate-income parents across the nation came to rely on the early tax payments hitting their bank accounts and mailboxes each month, lawmakers opted to allow the program to expire without an agreement on an extension for 2022.
That could make it tough for millions of families to make ends meet over the next year. After all, the money from the expanded Child Tax Credit program came with big benefits for families. It not only helped parents pay bills, fill pantries, and pay for other essentials, but it also pulled millions of families out of poverty, at least temporarily. As such, the loss of these financial boosts will be tough on lots of households, to say the least.
And, there could be more hits coming for certain households. In some cases, families will be on the hook for paying back the money they received last year for the advanced tax credits. This could make it even more tough for families on stretched budgets to make ends meet. Not sure whether you may be responsible for paying back the tax credit money you received in 2021? Here are four reasons why you may be required to repay the advance Child Tax Credit money when you file your taxes this year.
1. Your income increased in 2021
If your income increased significantly from 2020 to 2021, you may need to pay back some or all of the monthly tax credit payments that were issued from July to December of last year.
That's because the monthly payments had income limits to qualify. Single filers who made $75,000 or less, head of household filers who made $112,500 or less, and joint filers who made $150,000 or less were eligible to receive the full monthly payments. If your income exceeded the maximum limit, your Child Tax Credit payments were either reduced or eliminated altogether.
But the IRS had no way to determine what last year's income would be, as 2021 tax returns aren't slated to be filed until later this spring. So, eligibility was based on Americans' 2020 and 2019 tax filings instead.
That could cause problems for households that vastly increased their incomes from 2020 to 2021. For example, a household that earned a joint income of $144,000 in 2020 would have automatically qualified for the monthly tax credit payments. But if that same household increased their earnings to $180,000 during 2021, they would be over the maximum threshold to qualify for the full payments. As such, they would need to pay back some of the tax credit when filing their taxes.
2. Your filing status changed
A change to your filing status may have also resulted in an overpayment -- which means that you would need to pay back some or all of the tax credit when you file your taxes later this year.
For example, let's say that you were married in 2020 but got divorced in early 2021. In turn, your filing status changed from joint filer with a household income of $128,000 to single filer with an income of $94,000.
To qualify for the full payments as a single filer, you can have a maximum income of $75,000 -- so your single income of $94,000 would mean that your income exceeds the guidelines to receive the full payments. As such, you'll need to pay some of the money back that you received in 2021.
3. There was a change to your child's custody arrangement
Custody situations can change -- and if your child's custody arrangement was revised from 2020 to 2021, you may be stuck paying back some or all of the Child Tax Credit payments that you received over the last year.
For example, let's say that you received the maximum amount of the monthly tax credit payments for your teenage child. Your child's custody situation changed in 2021, though -- and they now live with you only in the summers.
Well, according to the guidelines for the payments, if a child lives with a parent for less than half of the year, the parent does not qualify to receive the Child Tax Credit. That means you would need to pay back some or all of what you were paid for the advance on the tax credit.
The same could be true for parents who cannot claim their child on their 2021 tax returns. It's relatively common for parents who share custody to switch off when claiming their child on their tax returns, with one parent claiming the child one year, and the other parent claiming the child the next.
Well, if you claimed your child in 2020 but it's the other parent's turn to claim them in 2021, you may be stuck repaying the tax credit money you've already received.
4. You moved out of the country
Another requirement for receiving the Child Tax Credit money is that you lived in the U.S. for more than half of the year. If you moved out of the country at some point -- and spent more than half of the year out of the states -- you will likely have to repay any Child Tax Credit money that was sent to you over the course of 2021.
How do I repay the Child Tax Credit money?
The good news is that if you owe money for a tax credit overpayment, paying back the money is a simple process. In most cases, you can wait until you file your taxes to report the overpayment to the IRS -- which you will do as additional income.
When you report this extra income, it will either cut down on the amount of money you will receive for your tax return or increase the amount you owe to the IRS for your 2021 taxes. If you owe the money as part of a tax payment, you will simply repay it via one of the approved payment methods offered by the IRS.
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