Children under the age of 6 allow parents to qualify for a tax credit of up to $3,600.
The Child Tax Credit is one half of that amount sent in monthly installments from July to December.
Questions include how the money will change next years taxes, if they will at all, and if accepting these payments could create issues next tax season.
The payment amount is based on a parent’s 2019 or 2020 tax return, but parents should remain aware of changes that could happen between tax seasons.
A child could age out of the age bracket that gives parents a higher amount for Child Tax Credit, resulting in an overpayment to families and them owing that money next year.
Details like that can be updated through a portal the IRS is setting up and parents can also opt out of the payments altogether.
Parents asking if they’ll owe taxes for the credits, the simple answer is no. These payments are advances on money for next year.
If a parent receives an “overpayment” they may need to pay that money back, unless they unenroll or opt out of the payments.
If parents receive money based on details that no longer apply to the family, they may also need to pay back an overpayment.
These reasons include a higher adjusted gross income, a dependent aging out of the bracket that qualifies the parent, or a change in custody.
The best way to avoid paying the IRS back is to be aware of the details that have changed, unenrolling or opting out, or being aware of the IRS’s Repayment Protection, which will protect lower income families making money up to a certain amount from needing to pay the money back, even if they’ve received more than they should have.
The IRS will be sending families a Letter 6419 to report the amount received on 2022 taxes.
Parents may claim the remaining amount of the credit on their taxes next tax season.
The Child Tax Credits will not affect other federal benefits that families receive.