You may have to pay back some of the new $3,000 child tax credit

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tax returns

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The IRS uses 2020 tax returns (or 2019 tax returns, if not available) to determine taxpayers’ eligibility for the child tax credit and advance payment amount.

The prepayments add up to half of a taxpayer’s total loan for 2021. The American Rescue Plan increased the maximum loan amount to $ 3,000 per child ages 6-17 and $ 3,600 for younger children.

The remaining half would be claimed during the tax season next year.

The information reported on next year’s tax return may differ from the current IRS data – and therefore change the total loan amount.

This can be the case, for example, if a taxpayer has another child in 2021. This can qualify him for an additional $ 3,600.

A tax charge can arise if a payer’s income that year increases dramatically from the income reported in a 2020 statement. This can decrease a person’s loan amount or instantly disqualify them depending on their income.

Online portal

The $ 1.9 trillion Covid Bailout, signed by President Joe Biden in March, offers taxpayers some safeguards to limit the size of the overpayment.

For one, the law instructs the finance department to set up an online portal for taxpayers to update information that has changed during the calendar year.

Pay attention to when the portal is available. And think about what could happen in 2021 that could affect that [credit] Quantity.

April Walker

Senior Manager of Tax Practice and Ethics at the American Institute of Certified Public Accountants

According to the law, the portal must allow taxpayers to change the following data: number of qualified children (including birth), marital status, significant change in income and other factors that the Treasury Department deems appropriate.

The portal must also allow taxpayers to opt out of receiving advance payments for the tax credit.

When will the portal be available?

The IRS is on schedule to launch the portal by July 1, Agency Commissioner Charles Rettig said during a hearing for the Senate Finance Committee last week.

It’s unclear whether the agency will include additional details like changing the address or the payment method like direct deposit, tax experts said.

“We’ll be on the market by July 1st with the absolute best product we can put together,” said Rettig. “We’re trying to make it as user-friendly as possible,” he added.

Families without internet access can update information in other ways, such as on paper or by visiting an IRS office, Rettig said at the hearing.

An IRS office building in the East Harlem neighborhood of New York.

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Prepayments will not begin until taxpayers have been given an opportunity to update information and opt out, he confirmed.

However, there may not be much time to tweak data before the IRS begins disbursing funds, said Nina Olson, executive director and founder of the Center for Taxpayers Rights.

“If the portal opens on July 1st but your first payments start on July 1st, when can you log out or update?” Asked Olson.

However, given the short timeframe in which the IRS was instructed to start the program, some administrative issues could be understandable, she said.

“”[The agency] will be given four months to deliver this thing, “said Olson.

$ 2,000 protection

However, low wage earners can be protected from having to repay some of the funds.

According to the Congressional Research Service, up to $ 2,000 per child would be protected from repayment if the error was due to net changes in the number of eligible children.

However, loan amounts over $ 2,000 would still have to be repaid.

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Individual filers with an income of less than $ 40,000 will receive the full Safe Harbor amount. (Heads of household and married couples filing a joint return are eligible if their incomes are less than $ 50,000 and $ 60,000, respectively.)

The protected amount of $ 2,000 will gradually expire as income increases. Individual applicants with incomes greater than $ 80,000 (or $ 100,000 for heads of household and $ 120,000 for joint applicants) would not be protected from overpayment.

“People shouldn’t rely on it,” Walker said of the safe haven.

“I would tell taxpayers to pay attention to when the portal is available,” she added. “And think about what could happen in 2021, which could affect that [credit] Quantity.”

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