WEST DES MOINES, Iowa — In 2021, parents could receive an advance of half of their child tax credit in monthly payments. The final credit was delivered in December. Soon those families will find out in a letter if they owe any or all of that money back to the IRS.
Brian Newton, a shareholder and CPA at McGowen, Hurst, Clark & Smith in West Des Moines, says the monthly payments were essentially an advance of dollars you would have received in your 2021 tax refund. “If you had a sizeable refund last year and that was largely attributed to the child tax credit, and you received advanced payments throughout the year, your refund is likely going to be less than it was in prior years,” he said.
Newton says throughout the course of the year, the IRS sent out advance child tax credit payments through the American Rescue Plan. Amounts varied depending on household income and the age and number of children a family had. Some families could get up to $3,600 annually per child. Those dollars were based on information from 2020. If your 2021 tax forms end up showing a significant raise in income or less dependents, you may be paying portions or all of your monthly credits back.
Newton also says it is important to wait to file your taxes until after you receive the letter from the IRS in the mail. It is expected to arrive in late January. The letter will detail the amount of advance child tax credit dollars received and information vital for your tax return. Newton said, “They will reconcile the math on the credits when they process your return, so if you don’t have the information in there they may hold up your return.”
Families that received monthly credits but added children in 2021 should receive additional credit on their refund. For more information on the child tax credit letter, head to irs.gov