How to Avoid Paying Back the Child Tax Credit

Shot of a young man giving his adorable child a high five at home.
Dean Mitchell / Getty Images

As part of the stimulus relief bill, parents will be able to receive up to $3,600 in child tax credits per qualifying dependent child. The credit will come in the form of direct monthly payments of $300 starting in July lasting and through December for half the total amount you can receive. The rest will be claimed next year at tax time.

See: You May Want to Opt Out of Monthly Child Tax Credit Payments – Here’s Why
Find: Two IRS Portals Are Being Created to Help You Get Your Child Tax Credit Money

However, there are circumstances that could have you paying the benefit back. These payments are an advance based on the taxes of your current income. For anyone to be eligible to receive the full child tax credit, the modified adjusted gross income must be $75,000 or less per year — $150,000 or less for married couples filing jointly. This means that if next year your salary increases, you might have to pay the credit back. This is because the child tax credit is given based off information from 2020’s tax return (or your 2019 return if you didn’t file in 2020). If your tax return for the year 2021 though states a change in salary, it could be possible that you were receiving money that you were no longer eligible for and might be asked to pay it back.

Make Your Money Work for You

Here’s how to avoid that.

Since the stimulus relief bill was passed into law in March, the IRS had to utilize 2020, or 2019, tax returns to estimate your income level for 2021. Tax credit availability is also based on marital status and the number of qualifying children and their ages. Since it is possible all of these factors could have changed since then, updated information is the most crucial element to avoid paying back any of the benefit.

See: Parents Quit Jobs, Build Debt to Pay for Child Care
Find: Social Security Benefits Might Be Cut Soon – This Calculator Shows You How Much You’ll Lose

If you haven’t updated your information with the IRS yet, fret not — starting July 1, the IRS will deploy two specific online portals for parents to report information for child tax credit eligibility. Updating the  information will be one of the most critical steps in ensuring you will not have to pay the credit back.

Payments will not be given until taxpayers have had a chance to update information or opt out via the portal, CNBC reports. If you do not have internet access, you will be able to do so at an IRS office or by mail.

Make Your Money Work for You

Another way to avoid having to pay back the credit, at least partially, is a protection for lower earners. According to the Congressional Research Service, $2,000 per child will be “shielded” from repayment if the error is due to net changes in the number of qualifying children. For example, one of your children just had a birthday that surpasses the eligibility age, but you already received a payment. Any amount of benefit you received after $2,000 would need to be paid back.

Reporting income and number of children will not force you to pay more taxes before you get the credits, but will serve to give the most accurate benefit amount without you having to pay back money later.

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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 

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