Are Child Tax Credit Payments Taxable?

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The second round of the advance monthly portion of the Child Tax Credit for 2020 hit bank accounts earlier last month, but the growing balance has people worried if they will be hit with a tax bill next year.

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The simple answer is no — but, it depends. Here is an easy way to know:

Do You Think You or Your Spouse Will Make Over the $75,000 Filing Single or $150,000 Filing Jointly Income Threshold in 2021?

No – CTC payment will not be taxed.
Yes – You could be required to pay back any payments you may have already received during next year at tax time.

Do You Have Children or Dependents Who Will Age Out of The Age Threshold in 2021?

No – CTC payment will not be taxed
Yes – You could be required to pay back payments or have them reconciled on next year’s taxes.

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These two questions are the main guidelines for whether or not you will be required to pay back the payments. Although there are more nuances, such as if there was a divorce, if the child lives with one parent or another for more or less than six months, etc, the IRS will offset any excess amount you received this year on next year’s taxes of the full benefit amount.

This year’s payments amount to half of the full $3,600 benefit amount. That means that if all six months of payments should not have gone to you as you exceeded one of the thresholds, there is likely no reason to worry. You will just simply not receive the other half of the benefit next year during tax time.

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The Child Tax Credit for 2020 is fully refundable, meaning you do not have to pay it back and there are no taxes due on it — as long as you are actually eligible to receive it. To make sure you are within the bounds to receive the money worry-free of anything due, use the IRS CTC Eligibility Assistant here.

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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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