Received Advance Child Tax Credit Payments? 5 Vital Things To Know

Did you receive monthly payments for your Child Tax Credit during 2021? According to the IRS, advance payments reached about 36 million families in 2021. But as tax filing season draws close, you may have questions about what comes next for the Advance Child Tax Credit. Here are five key things to know to protect yourself and your finances.

1. You'll Get a Tax Notice About the Credit

American taxpayers who receive the advance payments should look for a notice from the IRS. The tax agency will send letters detailing how much advance payment taxpayers received so that this information can be used on their 2021 income tax forms. Keep this and give it to your tax preparer. 

2. The Credit Is Reconciled on Taxes

While this new method of paying out tax credits was often confusing for people, it's actually just an advance on one of the most common tax credits available: the Child Tax Credit. Because it's an advance on what you normally would get refunded (or credited) when filing Form 1040, you will need to account for how much you already received and what you're eligible for. 

3. You Could Get More Money

The good news is that, as the IRS notes, the advance payments should only comprise up to half of your projected eligible credit. So most families will still be able to claim the other half through their income tax forms. 

4. You Could Have To Repay It

The advance payments were based on information about your dependents from 2019 or 2020 tax returns. Many taxpayers' family situations remained the same between these years, so they will likely see no negative consequences when filing Form 1040. However, if you can't currently claim the dependents on whom the advance tax credit was based, you may end up having to repay some or all of the money. 

5. Next Year Hasn't Been Decided

Because it was part of efforts to counteract pandemic financial troubles, the advance tax credit payments are not yet authorized for 2022. The federal government must agree to extend the advance payments — a negotiation that may be completed in the near future. Ask your tax preparer to keep you abreast of changes. 

Want to know more about how the advance Child Tax Credit payments will affect your 2021 income tax return? Start by meeting with an experienced tax service today. With their expertise and close watch on this new form of help for American taxpayers, you can make the most of the credit and avoid any surprise bills.