Don't Mess With Taxes

Family income affects just home much Child Tax Credit can be claimed. It also matters in the distribution of the 2021 increased amounts that are being delivered monthly through the end of this year. (Photo via Shutterstock)

The Internal Revenue Service will be delivering two more Child Tax Credit payments this year, on Nov. 15 and Dec. 15.

Eligible families need to make sure the IRS has the correct data for the payments. It could make a difference in both the amount of credits distributed this year and the families' tax returns filed in 2022.

Notably, any changes to income could affect how much Advance Child Tax Credit (AdvCTC) amounts families will — or should — get these last two months of the year.

So that the IRS has the correct information, it is adding a new taxpayer income feature to its Child Tax Credit Update Portal. It will be available on Monday, Nov. 1.

The IRS is urging AdvCTC recipients whose income has increased or dropped significantly since their 2020 tax return filing use the online tool's new feature to alert the IRS of the changes.

To ensure that changes are in time to affect the November payment, do so by 11:59 p.m. Eastern Time on Nov. 1. Note the time zone specificity. If you live in another region, adjust your time deadline accordingly. Or, easier still, make sure you make the changes early on Nov. 1.

Any changes made after Nov. 1 but by Nov. 29 will be reflected in the December AdvCTC payment, which is the last scheduled monthly payment for 2021.

Getting the correct payments: The new income feature can help families make sure they are getting the correct amount of AdvCTC this year. This is half of the total 2021 credit amount, which has been spread over six months of distributions.

The payments are $300 a month for each child younger than age 6 and $250 monthly for youths ages 6 to 17. The total payments from July through December come to $1,800 for the youngest age group and $1,500 for older children.

Small changes in income generally will not impact the AdvCTC payment amounts. But in some instances, a big income swing can either raise or lower a family's monthly payment.

The IRS will adjust the payment amount to reflect income revisions and ensure people receive their total advance payment, either $1,800 or $1,500, for the year.

And while those dollar amounts are nice bumps to family budgets, this weekend's By the Numbers figure is the Nov. 1 debut date of the income adjustment feature on the Child Tax Credit online portal.

Using the portal to report income changes: Only families who are already eligible for and receiving AdvCTC payments based on their 2020 tax return can use the IRS portal to update their income.

The IRS also points out that someone who filed a joint return for 2020 can only update their income if they plan to file a joint return for 2021 with the same spouse.

Married couples also should note that if one spouse makes the income update, it will apply to both spouses and could impact each spouse's future monthly advance payments of the Child Tax Credit.

After an income update is completed, the update portal will acknowledge a change was made but will not display the change.

Earnings update to get more credit now: Numbers, as the ol' blog's weekly feature highlights, are key to taxes. And since it is an income tax, those amounts are especially noteworthy.

They take on even more importance in connection with the enhanced Child Tax Credit.

In some cases, families who are currently receiving monthly payments that are below the maximum may qualify to have their payments increased. This could happen if, for example, they experienced job loss during 2021, or for some other reason are receiving substantially less income this year.

If the reduction in income is large enough, reporting that change now may increase the amount of their advance CTC payments for the rest of this year. This means that your monthly amount will be adjusted per the changes to ensure they receive half of their total expected credit — the previously mentions $1,800 or $1,500 depending on their children's ages — before the end of 2021.

Earnings update to avoid paying back excess credit: If you're on the other end of the earnings scale, you also should alert the IRS using the online CTC portal.

Yes, that will mean for families whose income rose substantially in 2021 that their AdvCTC amounts could be reduced. This is especially true for families currently receiving the maximum monthly payment, but who expect to qualify for less than the full credit when they file their 2021 federal income tax return.

When they do file their taxes next year and run the numbers, they likely won't get any additional Child Tax Credit amount and could even discover they must repay some or all of the amounts they got this year.

Rather than hassle with that and have to come up with the repayment cash, adjust your earnings info at the IRS portal so that you're getting the correct AdvCTC amount now.

Note the phase downs and outs: The American Rescue Plan Act that became law in March increased the Child Tax Credit for 2021. This tax year, instead of $2,000 per child, it is $3,600 per qualifying child age 5 or younger. It's $3,000 for children ages 6 to 17.

However, the Child Tax Credit begins to be reduced to $2,000 per child if your modified adjusted gross income in 2021 exceeds:

• $75,000 if you are a single filer or are married and filing a separate return,
• $112,500 if filing as head of household; or
• $150,000 if married and filing a joint return or if filing as a qualifying widow or widower.

There's also a second income-based phaseout. The credit could be reduced to less than $2,000 per child if your adjusted gross income in 2021 exceeds $200,000 if you are a single or head of household taxpayer or $400,000 if married and filing a joint return.

Sign up if you haven't yet: Finally, the IRS urges any qualifying families who aren't getting the AdvCTC to use the online portal to sign up for the payments.

This is especially important if you haven't filed a tax return recently because you didn't make enough money to be legally required to send in a Form 1040.

The IRS has a variety of online tools at its special Advance Child Tax Credit 2021 web page. There you can determine if you're eligible for the advance payments. If so, you can file a simplified tax return online to get them now.

You also might find these items of interest:

• Some Advance Child Tax Credit payments might have to be repaid 
• 6 Advance Child Tax Credit questions still being asked … and the answers!
• Nov. 1: Deadline for some MI, MS taxpayers and to opt out of early Child Tax Credit payments

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