The Internal Revenue Service will start sending out child tax credit payments to eligible families beginning Thursday, offering families another round of relief during the pandemic. But will this impact your taxes next year?
What is the child tax credit payment?
The Biden administration approved the child tax credit payments when it signed the American Rescue Plan — the $1.9 trillion coronavirus relief bill that passed Congress in March — into law. This plan brought stimulus checks to millions of Americans as well.
Will I have to pay this back when I do my taxes next year?
Maybe. Per CNBC, the advanced payments are based on estimates from the IRS, which uses its records to determine your income, marital status and number of children.
- However, if any of your information is outdated or changes, you may have to pay it back, according to CNBC.
- “It would reduce your refund or increase your tax payment next April,” April Walker, lead manager of tax practice and ethics at the American Institute of Certified Public Accountants, told CNBC. “That’s how it would be paid back.”
You may have increased tax bills if your income increases significantly in 2021 since the IRS is using 2020 return data. So make sure you’re up to date on your income.
How will this affect my taxes in 2022?
Mainly, you just have to worry about your income or family status changing in 2021. Since the IRS is using 2020 data, any changes in 2021 may present a change in your refund or your tax bill in 2022, as noted above.
Business Insider reports that half of the amount owed to families through the program will be given in the monthly checks. But the remainder will be given at tax time in 2022. So if you don’t receive all of the child tax credit, you will get some back in 2022.