Since the withholding tax credit is based on 2019 and 2020 tax returns, some people may be overpaid or receive money that is not intended for them.
ATLANTA – More than 36 million families received their last advance payment for the U.S. Child Tax Credit in December. And while Congress debates whether members will re-authorize the payments, questions remain about funds already received.
Mainly, will the parents have to reimburse part of the money? It depends.
The payment is simply the tax credit that qualifying parents would normally receive as part of their repayment each year. This has been the case since the inception of the Child Tax Credit in 1997. But in 2021, instead of waiting to receive the money once as part of the repayment, Congress allowed the money to be prepaid. .
But, the amount that parents are supposed to receive is determined by the income taxes and the circumstances of the child. Since the tax credit is based on 2019 and 2020 income tax returns, some people may be overpaid or receive money that is not intended for them. In these cases, the money will have to be refunded.
Here are the four circumstances:
If a parent made more money in 2021 to the point that they are no longer eligible, that parent will have to reimburse the overpayment.
For quick reference, families with less than $ 75,000 for singles, $ 112,500 for the head of household or $ 150,000 for joint returns are entitled to $ 3,600 for children under 6 and 3,000 $ for children under 18.
If a single filing parent made $ 75,000 in 2020 but $ 90,000 in 2021, that parent would have to repay some or all of the overpayment they received when filing 2021 tax returns.
There is leeway or repayment protection for low and moderate income taxpayers.
Families with adjusted adjusted gross income in 2021 of $ 40,000 or less on a single return, $ 50,000 on a head of household return, and $ 60,000 on a joint return can keep the overpayment.
Custody / dependent changes
If custody or marital changes took place in 2021, then a parent may receive money that they should not (or did not receive money to which they are entitled.)
If a child lives with a parent for less than half the year, the parent is not eligible for the credit. If dependents changed in 2021 compared to 2020, that could also lead to an overpayment.
For example, if parent A claimed their child in 2020, but parent B will claim the child in 2021 (common arrangement in divorce proceedings), then parent A will receive money for the child, even if it was supposed to be paid to parent B In this case, parent A will have to repay the overpayment and parent B will get the credit after filing their 2021 tax return.
Another example: if parent A has declared that they have two dependent children in 2020, but parent B will apply for one of the two children in 2021. Parent A may have received money for both children and should reimburse one. some or all of the money for one of the children.
And finally, there is the question of whether a child has aged. If a child is now 18 (but was 17 in 2020), that could lead to an overpayment.
If a parent’s tax return status has changed, an overpayment may occur. For example, if the parent changed their status from spouse to single, it could result in an overpayment.
The latest case in which someone might have to repay is if the eligible parent has lived outside the United States for more than half of the year in 2021.
If the payment was in paper (check) form, write VOID on the endorsement section and mail it to the IRS with a written explanation for the return of the check. Do not staple, fold, or paperclip the check.
If the check was cashed without realizing it was an overpayment or direct deposit, send a check or money order payable to “US Treasury”, write “Advance CTC” and social security number on the memo line and include a brief reason for payment.
If someone wants to wait to file their taxes, they will have to report the overpayment on the 2021 tax return as additional income. This will reduce the amount of the tax refund or increase the total taxes owed for 2021.