Child Tax Credit: Here’s Who Is Exempt From Paying It Back

by Maria Hartfield
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It’s that time of year again when parents should be on the lookout for a letter from the IRS. The important communication will summarize funds received in 2021. Some families may need to pay back any excess funds if allotted too much money from the IRS. Letter 6419 contains important information detailing child tax credits and who’s exempt.

When filing 2021 tax returns, citizens must note the total amount of advance child tax credit (CTC) awarded last year. This is coupled with the amount of qualifying child tax credit. If the amount received exceeds the total CTCs, the difference may need to go back to the IRS.

All child tax credit payments are based on tax returns from 2020. If information from a 2020 tax return isn’t available, the IRS would pull numbers from a 2019 return.

An increase in income or change in qualifying children may change your filing status. This may indicate you could have received too much money from the IRS. However, there are some exceptions if you think you’ve received too much child tax credit money.

Will You Need to Repay Advance Child Tax Credit Payments?

First, you could be exempt from repaying some or all of the excess amount if you qualify for repayment protection. If you don’t qualify for repayment protection, the IRS asks that you report the total excess as additional income tax on your 2021 return.

Claiming these funds as additional income tax will decrease the amount of your tax refund. Or, it will increase the total tax amount due for 2021.

For repayment protection and to avoid repaying any of your advance child tax credit payments, your main home must have been located in the United States for at least half of 2021. Additionally, your modified gross income (AGI) must show below a certain amount depending on your filing status.

According to the IRS, most individuals required to repay their excess advance child tax credit payments will simply receive a reduction in their federal income tax refund in order to satisfy the outstanding amount. On the contrary, if the amount is greater than your tax refund, the IRS will work with those who cannot afford to pay the amount in full by arranging a payment plan.

What if I Qualify for Repayment Protection?

In order to qualify for repayment protection, tax liability from extra CTC payments is reduced by up to the full repayment protection amount.

Full repayment protection comes out to $2,000 as follows:

  • The total number of qualifying children that the IRS took into account when determining the their initial estimate of your advance CTC payments; minus
  • The total number of qualifying children properly taken into account when determing the allowed child tax credit amount on your 2021 tax return.

For instance, if you claimed three children on your 2020 tax return, but then only one on your 2021 tax return. This results in receiving up to $4,000 in repayment protection. A total of $2,000 for each excess qualifying child.

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