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Before You File

If you received monthly advance child tax credit payments in 2021, there may be a costly surprise when filing your return.

Millions of families received upfront monthly credits, reducing their write-off at tax time, which may trigger a bill, depending on their 2021 modified adjusted gross income. However, if you opted out of monthly Child Tax Credit payments in 2021 it may feel a little like Christmas this spring. That is because you are now eligible for the entire boosted payment of $3,600 per child 5 and under and $3,000 for each dependent between 6 and 17.

The American Rescue Plan, enacted last March, increased the tax break to $3,000 from $2,000 per child under age 17, with $600 more for kids under age 6.

Some other things that can affect your tax refund or the amount you owe in taxes:

1. Your income changed in 2021

Let's say you qualified for full Child Tax Credit payments based on your 2020 tax return, but 2021 was an outstanding year for you financially and you earned too much money to qualify for the full amount. You may find yourself paying back anything you received that was more than you were owed.

On the other hand, if you made less money in 2021 and did not initially qualify for the entire Child Tax Credit amount, you may find that you now qualify for more and can expect a larger refund or to owe less on your taxes than expected.

2. You received an overpayment

The IRS was responsible for depositing millions of Child Tax Credit payments into bank accounts across the country, there were sure to be a few mistakes. Let's say you were paid for three children when you actually have two or received Child Tax Credit payments for a child under 6 when all of your kids are 6 or older. Again, you may find yourself paying the difference back to the IRS.

3. You weren't supposed to receive payment at all

Some Americans received payments they weren't supposed to receive. For example, if you're divorced and your ex has primary custody of the kids, there's a chance you weren't supposed to receive any Child Tax Credit funds. If you did, the IRS will know about it and will expect to be reimbursed.

4. One of your kids aged out

To receive Child Tax Credit payments, your child had to be 17 or younger on Dec. 31, 2021. If one of your children turned 18 before the last day of the year, you might find yourself owing the money back.

5. You welcomed a new member to the family

If you became the guardian to a child in 2021, gave birth, or adopted a child, the IRS may not know yet. If so, you did not receive Child Tax Credit payments and now qualify for the entire amount when filing your 2021 tax return.

If any of these scenarios apply to you, take extra care when filing your 2021 taxes to make sure your return is accurate.

The Internal Revenue Service reported on Feb. 11 that it has issued more than 4 million tax refunds already for the 2022 tax season. The average refunds were $2,201.

Total returns received: 16,685,000

Total returns processed: 12,992,000

Total refunds: 4,330,000

That is ten days into a filing season that opened on January 24. The IRS expects to get 160 million individual returns this filing season for the 2021 tax year.

If you look at the statistics for Day Eight of last year’s filing season, refunds were averaging $2,880 for nearly 30 million returns processed. One reason for the higher number of returns early last year was because last year’s filing season started two weeks late, giving taxpayers more time to be ready to file at the start of the season. One reason for the lower dollar amount of refunds so far this year is that most families with children got advanced child tax credit payments in the second half of 2021. Most of that money was simply an advance.

*Before you file, make sure you have two important IRS letters on hand. If you have kids, you’ll need *Letter 6419 Advance Child Tax Credit Payments. If you got less than the amount that you're eligible for, you'll claim a credit for the remaining amount on your 2021 return. If you got more than the amount for which you're eligible, you may need to repay some or all of that excess payment when you file.

*Letter 6475 Your Third Economic Impact Payment specifies whether you got the third-round $1,400 payment, including any plus-up payments, and will help individuals determine if they’re eligible to claim the Recovery Rebate Credit for missing stimulus payments.

The fastest way to get your tax refund? File electronically and choose direct deposit for a refund. Choose direct debit if you have a balance due.

What if you still haven’t received your refund from last year? You can still file a 2021 return. If your 2020 tax return hasn’t been processed yet, enter $0 (zero dollars) for your prior year adjusted gross income (AGI). If you used the Non-Filers tool in 2021 to register for an Advance Child Tax Credit payment or third Economic Impact Payment (a.k.a. stimulus check) in 2021, enter $1 (one dollar) as your prior year AGI.

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