Stimulus Update: 6 Ways the Advance Child Tax Credit Could Affect Your 2021 Tax Refund

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  • The Child Tax Credit payments received in 2021 could positively or negatively affect your 2021 tax return.
  • If you had a child age out of eligibility, your income changed significantly for better or worse, or any of these four other scenarios apply to you, you may owe (or be owed) extra on your tax refund this year.

Tax time this year involves settling up Child Tax Credit payments.

There's no two ways about it; it's been an odd couple of years. Medically, politically, and financially, it's been one upheaval after another. One positive was that the federal government sent monthly advance Child Tax Credit payments to families over the last six months of 2021. For many, it was a way out of poverty. It was a way to pay for groceries and medical bills for others.

That said, your tax refund (or the amount you owe in taxes) may look different this year if any of the following apply:

1. One of your kids aged out

To receive Child Tax Credit payments, your child had to be 17 or younger on Dec. 31, 2021. If one of your children turned 18 before the last day of the year, you might find yourself owing the money back.

2. Your income changed in 2021

Let's say you qualified for full Child Tax Credit payments based on your 2020 tax return, but 2021 was an outstanding year for you financially and you earned too much money to qualify for the full amount. You may find yourself paying back anything you received that was more than you were owed.

On the other hand, if you made less money in 2021 and did not initially qualify for the entire Child Tax Credit amount, you may find that you now qualify for more and can expect a larger refund or to owe less on your taxes than expected.

3. You received an overpayment

Given that the IRS was responsible for depositing millions of Child Tax Credit payments into bank accounts across the country, there were sure to be a few mistakes. Let's say you were paid for three children when you actually have two or received Child Tax Credit payments for a child under 6 when all of your kids are 6 or older. Again, you may find yourself paying the difference back to the IRS.

4. You weren't supposed to receive payment at all

Although we haven't heard of this first-hand yet, it's possible that some Americans received payments they weren't supposed to receive. For example, if you're divorced and your ex has primary custody of the kids, there's a chance you weren't supposed to receive any Child Tax Credit funds. If you did, the IRS will know about it and will expect to be reimbursed.

5. You opted out of monthly payments

It may feel a little like Christmas this spring if you opted not to receive monthly Child Tax Credit payments in 2021. That's because you're now eligible for the entire boosted payment of $3,600 per child 5 and under and $3,000 for each dependent between 6 and 17.

6. You welcomed a new member to the family

If you became the guardian to a child in 2021, gave birth, or adopted a child, the IRS may not know yet. If so, you did not receive Child Tax Credit payments and now qualify for the entire amount when filing your 2021 tax return.

Yes, it's been an odd couple of years. But if nothing else, the global pandemic has taught us that we're more flexible than we believed and can deal with more than we imagined. If any of these scenarios apply to you, take extra care when filing your 2021 taxes to make sure your return is accurate.

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