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Can Child Tax Credit payments affect my tax return in 2022?

The new-look federal programme provides monthly direct payments for the first time, but you should be aware of how it will affect your 2021 filing.

The new-look federal programme provides monthly direct payments for the first time, but you should be aware of how it will affect your 2021 filing.

The new-look Child Tax Credit overhauls not only the size of the payment on offer but also the way in which the money is distributed. No longer a single end-of-year tax credit, the new programme offers monthly payments for eligible families.

From 15 July the IRS began sending out the first round of recurring payments, worth up to $300 for each child under the age of six and $250 for those aged between six and 17.

Currently the federal government has provided funding for the first year of the new programme, although the payment structure will be split into two:

  • Monthly payments from July – December:
  • Single payment for the remaining six months when a tax return is filed in 2022

The Child Tax Credit is not considered a form of household income so it will not affect your eligibility for any other federal or state support programmes or any future rounds of stimulus checks. However there are some things you should bear in mind when considering your tax filing for the 2021 tax year.

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Opt out of monthly payments to get an end-of-year credit

While the monthly payments are expected to help low-income families this approach may not suit everyone. Although these payments are more consistent many households may now be used to relying on the end-of-year Child Tax Credit to reduce their tax bill when it comes to filing.

Under the new system, a family with two children could receive up to $6,000 when they file their 2021 tax return, which could significantly reduce their tax bill or even be added to a tax refund.

Even if you’ve already received the first round of monthly Child Tax Credit payments it’s not too late to opt out of this structure and you can easily return to the old system. For more information on how to withdraw from the programme ahead of the August payment, check out Child Tax Credit 2021: how to opt out.

You may need to repay the monthly Child Tax Credit payments

Although the money is available now, the monthly payments are essentially just an advance on the tax credit which would be made available when filing taxes in 2022. As such eligibility for the payments is based on your adjusted gross income for 2021.

If you experience a significant income increase before the end of 2021 you may end up earning more than the threshold for Child Tax Credit eligibility. The amount on offer phases out gradually when you exceed the threshold, but it does bring the possibility that you could end up having to repay a proportion of the monthly payments in future.


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