Should I expect a smaller refund if I got child tax credit checks?

Child Tax Credit

(NEXSTAR) — If you are one of the millions of American parents who spend tax time plugging in numbers and hoping your tax software spits out a refund, you may be wondering if the monthly child tax credit checks you cashed late last year will eat into your refund. For some, it will.

From July to December 2021, a typical family received $300 monthly for each child 5 and under and $250 for kids 6 to 17. Those so-called advanced payments made up half of the overall credit most parents were eligible for on their 2021 taxes. Check recipients are no longer eligible to claim that portion of the money when filing their 2021 taxes.

In the past, the credit was taken at tax time and limited to a maximum of $2,000 per child. As part of the Biden Administrations American Rescue Plan, the maximum credit was bumped to $3,000 or $3,600 depending on the age of your child. In both cases, the increased benefit phased out for higher-earning parents.

That means many parents who would have claimed $2,000 per child when filing in previous years will now claim $1,500 or $1,800 at filing time, depending on the age of the child. For some, that could lower the potential refund amount.

The IRS has been distributing letters detailing previous payments and explaining how to record them on 2021 taxes. The agency has also warned that some may owe money back if they were overpaid. Payments in 2021 were based on previous years’ returns, so some situations — like an increase in income during 2021 or a child aging out of the benefit — might lower the amount owed to the taxpayer.

If everything else stayed the same on your taxes from 2020 to 2021, you may end up owing slightly more this filing period if you took the credit. But most people have new variables at play. For one thing, the government increased the allowed credit for child care, setting up many parents to further offset the cost of daycare and other programs, which could lower the IRS tab for the year.

“There are so many other variables to consider,” Albuquerque-based CPA Monica Yaple says of the child tax credit. “Some taxpayers claim their children every other year and actually received advance credits that they’ll have to repay if they’re not claiming that child on their 2021 tax return. Some taxpayers didn’t receive the advance credit for a variety of reasons and might receive a larger than usual refund. As with most tax questions, there is more than one answer depending on the circumstances.”

Coinciding with the opening of tax season, the Treasury Department launched a new website — ChildTaxCredit.gov — to help parents understand the eligibility requirements and better grasp how the credit will impact their refund.

The child tax credit is fully refundable, meaning even parents who do not owe taxes can get the credit, but they have to file annual tax documents to be eligible.

The Biden administration says the 2021 expanded child tax credit paid out $93 billion over six months of pre-payments, according to reporting from the Associated Press. A reported 36 million families received payments in December alone.

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