Some people may owe the Internal Revenue Service (IRS) a chunk of their child tax credit (CTC) advance payments back. Basically, if you earned significantly more income in 2021 than you did in 2020 or 2019, you may have to pay the IRS back.
You can find information on how to return a payment at the IRS’s website. But according to Yahoo Finance, the IRS will also add any overpayments into your next tax bill or will cut the amount of your total refund.
“It would reduce your refund or increase your tax payment next April,” April Walker, lead manager of tax practice and ethics at the American Institute of Certified Public Accountants, told CNBC. “That’s how it would be paid back.”
IRS Used 2020 Tax Returns to Calculate Child Tax Credit
The IRS reportedly used 2020 tax returns to calculate the amount of advance payments parents were owed. Failing that, they may also have used 2019 tax returns.
Moreover, the advance payments comprise roughly half of the total child tax credit for 2021. Thanks to the American Rescue Plan, those payments skyrocketed to $3,600 for kids under 6 and $3,000 for kids aged 6 to 17.
Meanwhile, the rest of the payment is supposed to go out next year amid tax season.
IRS Is Launching a Portal for Taxpayers, as Required by Law
One part of the American Rescue Plan required the Treasury Department to build an online portal. Through it, taxpayers can change their information – such as number of children, marital status and income – and decline the advance child tax credit payments if they so choose.
IRS Commissioner Charles Rettig recently told the Senate Finance Committee that the portal should go live by July 1. Those who lack Internet access can change information by visiting an IRS office.
“We will launch by July 1 with the absolute best product we’re able to put together,” Rettig said, per CNBC. “We are trying to get it as user-friendly as possible.”
But Center for Taxpayer Rights founder Nina Olson told CNBC that the IRS has a narrow window in which to get the portal up and running before it begins sending out payments.
“If the portal opens July 1, but first payments start July 1, when is your window for opting out or updating?” she pointed out. “[The IRS has] four months to deliver this thing.”
Figuring out the correct child tax credit amount may become a headache for taxpayers. But it just goes to prove the old adage: There’s no such thing as a free lunch.