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KatyHS
Level 1

How to prevent owing taxes on 2021 return after receiving the child tax credit throughout 2021?

Hello,

 

My family started receiving $300 for each of our 2 children ($600 total) this month, July 2021. It's my understanding that this monthly amount is essentially a payment spread throughout the year of the dependent tax credit we would have received after filing out 2021 tax return. Is this a correct understanding? Also, what are some of the risk factors that would make us owe 2021 taxes now that we won't be able to deduct our dependents at the end of the year as we usually did in the past?

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Accepted Solutions
Destiny_Y_JD
Employee Tax Expert

How to prevent owing taxes on 2021 return after receiving the child tax credit throughout 2021?

You are correct. The payments you receive are an advance of the Child Tax Credit that you would normally get when you file your 2021 tax return. Because these credits are paid in advance, every dollar you receive will reduce the amount of Child Tax Credit you will claim on your 2021 tax return. This means that by accepting advance child tax credit payments, the amount of your refund may be reduced or the amount of tax you owe may increase.

As long as you meet the criteria and income thresholds then your taxes should reconcile fine. If by chance your income does increase (fingers crossed for super big raise this year), then you might owe a little back. See more about reconciling the tax credit with your tax return here.  
Also, just in case you do receive that big raise. The IRS gives you ability to manage payments at their portal

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**Mark the post that answers your question by clicking on "Mark as Best Answer"

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1 Reply
Destiny_Y_JD
Employee Tax Expert

How to prevent owing taxes on 2021 return after receiving the child tax credit throughout 2021?

You are correct. The payments you receive are an advance of the Child Tax Credit that you would normally get when you file your 2021 tax return. Because these credits are paid in advance, every dollar you receive will reduce the amount of Child Tax Credit you will claim on your 2021 tax return. This means that by accepting advance child tax credit payments, the amount of your refund may be reduced or the amount of tax you owe may increase.

As long as you meet the criteria and income thresholds then your taxes should reconcile fine. If by chance your income does increase (fingers crossed for super big raise this year), then you might owe a little back. See more about reconciling the tax credit with your tax return here.  
Also, just in case you do receive that big raise. The IRS gives you ability to manage payments at their portal

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
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