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Advance Child Tax Credit amount less than you expected? Income, garnishments could be why

Children looking at camera
Millions of parents are as happy as these youngsters, thanks to the first Advance Child Tax Credit payment that arrived this month. Others, however, are wondering why they got less.

The first of six scheduled Advance Child Tax Credit payments have arrived, and for the most part, the recipients are elated.

Paul Williams, an economist and writer, has collected many of the happy recorded (or recreated) reactions in an entertaining Twitter thread.

Some folks, however, aren't so thrilled. In fact, they're wondering why they didn't get the full $300 per month for each dependent child younger than age 6 and up to $250 per month for each child ages 6 through 17.

Too much money: The main reason for the payment shortage is that the income information on file with the Internal Revenue Service — for most of the automatic AdvCTC recipients, that's what's on your 2019 or 2020 tax return filing — is more that the earnings threshold for the full payment.

You'll get the full amount if your adjusted gross income (AGI) is:

  • $75,000 or less and you are a single taxpayer,
  • $112,500 or less and you are a head of household filer, or
  • $150,000 or less and are a married couple filing jointly.

If you make more than those amounts for your filing status, your AdvCTC payments will be reduced.

Another reason for smaller than expected AdvCTC payments is that someone else is getting a cut first. This process, known as offsets, isn't common when it comes to the advance payments that began this month. And the reductions also apply in a specific situation.

But it is happening, enough so that the IRS recently addressed the offset issue in a series of questions and answers on its Advance Child Tax Credit web page.

No government offsets … for now: First, the good offset news. The IRS points out that these AdvCTC payments, which total half of the full credit amount to which qualifying taxpayers are entitled for the 2021 tax year, will not be reduced (that is, offset) for overdue taxes from previous years or other federal or state debts that the taxpayer owes.

The not so good news, however, could come into play when you file your 2021 return to collect your remaining half of the Child Tax Credit. If you get a refund when they you file next year, any remaining Child Tax Credit amounts included in that refund may be subject to offset for tax debts or other federal or state debts they owe.

And, if the taxpayer files a joint 2021 tax return and the couple receives a refund, any remaining Child Tax Credit amounts included in that combined filing refund may be subject to offset for tax debts or other federal or state debts that just one spouse owes. In this case, the spouse who doesn't have a debt subject to refund offset can file Form 8379 (Injured Spouse Allocation) with their 2021 tax return to receive his/her unaffected portion of the joint refund.

Similarly, the AdvCTC payments are protected from collections of past-due child support.

Third parties can collect: However, if you have a debt that's owed to a non-federal creditor, your AdvCTC could be in danger.

The IRS notes that the advance payments are not exempt from garnishment by non-federal creditors under federal law. That means that to the extent permitted by your state and local laws, your AdvCTC payments may be subject to garnishment.

This could be the case where your state and/or local government have turned over collection to private creditors. This can be collections related to related to a crime, administrative court fees, restitution, and other court-ordered debts.

Some states (notably California) and financial institutions have taken steps to protect AdvCTC payments in these situations. But not all.

The one bit of good garnishment news here is that in combined cases, for example, where a taxpayer if facing a judgment obtained by a private party, but also owes assessed federal taxes, the IRS will not subject the payment to offset in connection with the federal taxes.

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