Answers To Your Questions About Advance Child Tax Credit Payments

Are you a parent or guardian who can claim the Child Tax Credit on your federal income tax returns? Then you likely have begun receiving this tax credit in the form of monthly payments beginning in July 2021.

These advance payments are new for most Americans, so you probably have many questions about how this works. To help you avoid any unnecessary complications or tax bill surprises, here are answers to five important questions.

How Do You Reconcile the Credit?

Taxpayers who receive an advance tax credit (such as the Advance Premium Tax Credit for health insurance) reconcile their payments on Form 1040 when they file their annual federal income taxes.

The form includes information on the total tax credit for which the person is eligible, how much they received in advance, and whether this results in any additional amount still due or any amount that must be repaid. 

Will You Still Get the Tax Credit In Your Refund?

For most taxpayers, the amount received in advance for the Child Tax Credit should be less than the total tax credit they're eligible for in a year. So if you claim one child and are eligible for $3,600 in tax credits on Form 1040, the $1,800 you received in advance means you can still receive $1,800 with your tax refund.

However, your tax refund will be smaller than you may have received in the past when this was a lump sum. Taxpayers should prepare for this change. 

Do You Have to Pay Back the Money?

As mentioned, most taxpayers will receive in advance less credit than they claim on their taxes.

However, if your family situation changes and you are unable to claim one or more children who were included in your advance calculations, you may end up having to return some or all of this tax credit when you reconcile on Form 1040. This means it's important to work with your tax preparer to stay abreast of any family changes. 

Can You Opt-Out of the Advance Payment?

Whether you can't claim a dependent this year or you simply want to get your total tax credit at once in the spring, you can opt-out of these payments. The IRS provides opt-out instructions on its website. If you need help, your tax preparer may be able to assist you in requesting no additional midyear checks. 

Where Can You Learn More?

Want answers to other questions about the advance tax credit process? Need help determining if you qualify and how to avoid receiving too much in advance? Start by meeting with an accounting professional who offers tax services in your state today. The investment of time now can help your whole family enjoy better financial stability and a lower tax bill.