The monthly stimulus payments made last year were based on either your 2019 or 2020 tax return. However, if your life circumstances have changed since your last filing, you may have received an overpayment. For example, if your income increased after you filed your 2020 taxes, or if your child grew out of a tax bracket. If this is the case, you may owe the IRS money when an adjustment is made to your 2021 tax return.
Will I owe the IRS money for the child tax credit checks I received last year?
The quick answer is no, but you'll still need some financial information. According to Mark Jaeger, vice president of tax operations at TaxAct, the child tax credit cheques do not count as income, therefore you won't have to pay income tax on them.
These checks were described by the IRS as "advance" payments planned in terms of the 2021 tax season. While you will not be required to pay taxes on payments received in 2021 this year, you may be required to repay the IRS a portion of the advance payment when you file your income tax return in 2022.
Will I have to repay any money if I received more than I expected?
Maybe. Unless you opted out of the monthly child tax credit payments, you should have received half of your expected amount from the IRS in 2021. Instead of receiving smaller amounts between July and December of last year, you will just receive your money when you file your 2021 tax return.
If you received more child tax credit money than you actually qualify for due to incorrect household information, you may be required to reimburse some of the money to the IRS.
What are the income limits for reimbursing child tax credits?
Even if you received more child tax credit money than you technically should have, if your household's adjusted gross income, or AGI, for 2021 was below a predetermined income level, you're unlikely to owe the IRS anything.
This is known as "repayment protection" by the IRS, and it ensures that low-income households are not have to refund any money. The amount you must repay increases or phases in as you reach a specific earning level, until you owe full payback.
The IRS sent out a letter between December 2021 and January 2022 that will help you figure out if you were overpaid and if you need to reimburse all or part of the advance payments.
It may appear complicated, but the IRS has resources to assist you in determining your eligibility. You should also double-check that all of the information on your child tax credit letter is valid.
