Stimulus Update: Update This IRS Info Now or You May Have to Pay Back Part of the Child Tax Credit

Looking forward to the monthly Child Tax Credit checks? Just make sure this info is up to date with the IRS or you could be stuck with an unexpected tax bill next year.

Are you still waiting on your third stimulus check? If your payment is one of those still missing, don't panic. The IRS is continuing to issue $1,400 stimulus checks and plus-up payments to those who qualify, and will continue to do so in the near future. As of early July, the IRS has sent out almost 170 million stimulus checks in total, with a total value of about $395 billion, and more money is expected to be issued over the next few weeks.

If you've already received your check, money could be headed your way soon. In addition to plus-up and stimulus payments, the IRS will soon begin processing the monthly payments for the enhanced Child Tax Credit, which will offer financial relief to parents or guardians who qualify. The federal agency is slated to start issuing the first round of Child Tax Credit payments on June 15, and the monthly payments will continue to land in bank accounts and mailboxes until December 2021.

But, while the $3,600 maximum Child Tax Credit benefit will be helpful to those who are still struggling to make ends meet, unlike the stimulus payments, these payments aren't exactly free money. In fact, some or all of this money may have to be paid back on your taxes next year if you aren't careful. Before you start spending the money from this round of direct payments, make sure you update the information outlined below. Otherwise, you could end up owing the IRS money for the Child Tax Credit on your 2021 taxes.

Why you may have to pay back the Child Tax Credit

The first three rounds of stimulus payments were essentially free money to Americans who qualified. Except for in rare instances, the money people received from the stimulus direct payments came with no strings attached. The Child Tax Credit? Not so much.

As with the stimulus money, the IRS will be determining who qualifies for the monthly payments -- and it will automatically issue the money to those households each month. The IRS will determine whether you qualify for the advanced payments based on the data they have available from your 2020 or 2019 taxes, including your income, marital status, and number of children you have in your household, and the age of qualifying kids.

Unlike the stimulus money, though, the money for the Child Tax Credit has strings attached. If you're overpaid for the Child Tax Credit by the IRS -- or if you receive it mistakenly based on outdated information -- you could be on the hook for repayment next year.

This can happen for a couple of different reasons, one of which is an increase in household income. If you are on track to earn significantly more in 2021 than you did in 2020, you are at risk of this. And, if your income increase pushes you over the income threshold, you will likely be on the hook for a partial repayment on your taxes next year.

Having outdated information on file with the IRS might also cause you to be overpaid for the monthly Child Tax Credit payments. This would also make you responsible for repaying the money when you file your 2021 tax return.

Neither situation is ideal. You don't want to be stuck with a tax bill for 2021 that could reduce your refund or increase your tax payment next April. So, if you think you might be at risk of this issue, it's imperative that you take action now -- before the checks are issued. Otherwise, you could end up in a sticky situation during tax time next spring.

Update this information now to avoid IRS issues later

If you want to avoid an overpayment issue, you can log into the IRS Child Tax Credit Update Portal to update the information that's on file with the IRS.

When you log into the portal, you should update the number of children who qualify in your house -- including birth children -- as well as your marital status, any changes in your income, and other factors that might cause an accidental overpayment. Making sure that your information is up to date and on file with the IRS is the easiest way to avoid any issues during tax time next year.

Or, you can opt out of the monthly payments for the Child Tax Credit completely to avoid any issues with overpayment. The monthly Child Tax Credit payments are optional, but you won't lose all of the benefits of the credit. If you opt out, you will simply receive the credit in one lump payment instead.

Unfortunately, it's too late to opt out of the July 2021 payment for the Child Tax Credit if you haven't already done so. The payments are slated to start on July 15, so you've missed the deadline for this round.

But, you aren't completely out of luck if you want to take this route. You can still opt out of the payments for August through December. To do this, all you have to do is log into the update portal. You'll be able to see if you're enrolled in the monthly automatic payments -- and opt out completely if you are.

That said, if you want to opt out of the upcoming payments you'll need to act quickly. You only have until Aug. 2 to change your status and opt out of the remaining monthly payments for the rest of 2021.

"To access the Child Tax Credit Update Portal, a person must first verify their identity," a recent IRS announcement states. "If a person has an existing IRS username or an ID.me account with a verified identity, they can use those accounts to easily sign in. People without an existing account will be asked to verify their identity with a form of photo identification using ID.me, a trusted third party for the IRS."

You can also use this portal to update or provide your bank information if you'd prefer a direct deposit over a paper check each month.