Early Child Tax Credits Sent Out By IRS
You may have woke up this morning with a little more change in the bank account due to EARLY Child Tax Credit payments being sent out by the IRS. There are a couple things to keep in mind when receiving these advance payments.
The amounts you receive over the next few months will go against your overall Child Tax Credit that you will receive when we file next year in 2022. The IRS intends to send you 50% of your Child Tax Credit over the next 6 months. This means, that if you had received a 2020 Child Tax Credit of $6,600, you should expect to receive approximately $550/month for July through December 2021 for a total of $3,300. The potential issue will arise when we file in 2022 as you will only have $3,300 remaining for your Child Tax Credit. I’ve detailed a couple scenarios below to help you better understand the potential issue and how we can be sure to avoid owing additional money at the time of filing next year.
Scenario 1
Owe Additional Tax at Time of Filing
If you had to make a payment to the IRS at the time of filing and the Child Tax Credit you received on your previous return lowered the overall amount that was due; the advance Child Tax Credit may have an adverse effect to your overall tax situation when we file in 2022. If your income remained consistent with 2020 and/or increased over 2020 then the Advance Child Tax Credit will have an adverse effect to your overall taxes at the time of filing.
Scenario 2
Received Small Refund – Less than Overall Child Tax Credit Received
If you received a refund last year but it was smaller than your overall Child Tax Credit, there is a possibility that you will end up owing additional tax to the IRS at the time of filing the 2022 return.
Scenario 3
Received Refund – Greater than Overall Child Tax Credit Received
If you received a refund that was in excess of the overall Child Tax Credit you received then there is a good chance that these advance payments will only affect your overall refund you receive after filing in 2022.
Scenario’s 2 and 3 work if your income situation remained consistent with 2020 or has decreased. If your income in 2021 will be more than 2020, then there’s a good chance these advance payments will have an adverse effect on your overall taxes when we file in 2022.
If you are wondering what amount you are set to receive for your 2021 Child Tax Credit, use the 2021 Child Tax Credit Calculator for calculating that amount.
If you need additional information or to make changes to your dependents or to opt out of the advanced child tax credit payment please visit the IRS Child Tax Credit Update Portal.
As always, if you would like to discuss any of this information, please give me a call or send over an email and we can discuss this further.
