Taxpayers who received an Advanced Child Tax Credit from July 2021 to December 2021 will soon receive Letter 6419 from the IRS detailing the amount of benefits received. It is important that taxpayers who receive these letters use this information, or provide it to their tax professional, so that they can reconcile the amount received with the total amount due to calculate the remaining credits available to them.
Unlike the Economic Stimulus Payments of the past two years, excess Advanced Child Tax Credits may have to be paid back if the taxpayer’s income exceeds certain thresholds. Keep in mind, the additional credits above the $2,000 prior year amount are subject to lower income phaseouts. In addition, the advanced payments were paid based on taxpayers 2020 income which may differ from their 2021 income.
If you expect your 2021 income to be higher than 2020, you may not be eligible for the full amount and therefore may be responsible for paying back any excess. This could also create an issue for divorced couples who alternate years to claim dependents. The Advanced Child Tax Credits were generally paid to whomever claimed the dependent on the 2020 return even though they may not claim the child in 2021 and therefore may not be eligible for the credit.