Advance Child Tax Credit payments could impact next year’s taxes

August 30, 2021

Claiming the monthly Advance Child Tax Credit payment now could reduce or eliminate any child tax credit you might be eligible for next year.

What is the Advance Child Tax Credit?

The Advance Child Tax Credit is part of the COVID-19 relief bill. If you qualify, now through December 2021 you will receive 50% of the estimated amount of the Child Tax Credit you may be eligible for when filing your 2021 tax return.

The current monthly payment is based on the Child Tax Credit amount claimed on your 2020 or 2019 tax return. On average, families will receive up to $300 per child each month.

Payments are sent automatically to the financial institution listed on your tax return. No additional action is required.

How this tax credit might impact your taxes in 2022 

  • Claim the remaining 50%. You may be able to claim the other half of the credit on your tax return in 2022.
  • You may owe the IRS in 2022. If this year’s total advance credit amount is greater than the credit amount claimed on your 2020 tax return, you may have to repay the excess amount. For example, if you claimed two qualifying children on your 2020 tax return but will claim no qualifying children on your 2021 return, you may have to repay the credit. The Advance Child Tax Credit payments you received based on those children are added to your 2021 income tax liability unless you qualify for repayment protection.

In January 2022, the IRS will mail you a letter confirming the total amount of advance payment you received, unless you have opted out of receiving the payments. Keep this letter. You may need to refer to it when you file your 2021 tax return. Your tax advisor can help you calculate your potential tax liability.

How to avoid scams

Watch out for thieves trying to use the Advance Child Tax Credit payments to steal your personal information and money. The IRS doesn't initiate contact by email, text or social media to request personal or financial information. Forward suspicious email and online scams to the IRS at phishing@irs.gov.

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