The Internal Revenue Service will send out its last round of Child Tax Credit advance payments next Wednesday, Dec. 15, ending (for now) President Biden's efforts to give American parents steady extra income during the ongoing COVID-19 pandemic.
Most parents will be getting $300 for each child under age 6, and $250 for each child aged 6 through 17, the last of six payments that began in July. Those parents who opted out of the advance payments will be able to use the full amount to offset their taxes owed next spring.
The payments, which come as direct deposits or as paper checks, are advances on half the child-related tax credits — $3,600 for each child under 6, and $3,000 for each child between 6 and 18 — that most parents will receive one way or another.
If you welcomed a new bundle of joy this year, or otherwise gained a dependent under age 18, you'll be able to get a credit for the new child in your 2021 tax returns. The IRS is encouraging anyone in this situation to file their 2021 income taxes early in order to get that credit, hopefully in the form of a tax refund, as soon as possible.
"The fastest way for you to get your tax refund that will include your Child Tax Credit is by filing electronically and choosing direct deposit," said the IRS in a 2021 tax-filing FAQ posted on the agency's website.
Adding a new member to your family will also mean that you'll be able to collect the $1,400 stimulus-check amount for that person, as provided for by the American Rescue Plan Act (the third stimulus bill) in March. This money is separate from the Child Tax Credit, and you'll be able to claim it as a deduction on your 2021 tax returns.
You just might have to pay some of it back
However, there's a potential pitfall here: If one of your underage children moved out, you moved out of the country or your income went up in the past year, you may have to repay the government part of what it paid you in Child Tax Credit advances over the past six months.
"Taxpayers who received less than the amount for which they're eligible will claim a credit for the remaining amount of Child Tax Credit on their 2021 tax return," the IRS said earlier this week. "Taxpayers who received more than the amount for which they're eligible may need to repay some or all of the excess payment when they file."
If one of your kids spent more than half the year (183 days, legally) with a different adult who can claim the child as a dependent, then you may owe the government. If you spend more than half the year living outside the U.S., same deal.
If your income went north of $75,000 if you file as an individual, $112,500 if you file as a head of household (which most single parents would), or $150,000 for married couples filing jointly, then you won't qualify for the full child tax credit on your 2021 taxes and you may have to pay some back.
But don't panic just yet. The six monthly payments that have gone out since July amount to only half of the full child tax credit that you would be entitled to claim on your 2021 taxes. Many people whose income went up, had a child move out or left the country will just get a smaller tax credit in the spring.
Hold on to your paperwork
All parents or other taxpayers with underage dependents should get a letter in January detailing the total amount they received in advance Child Tax Credit payments in 2021.
"People should keep this and any other IRS letters about advance Child Tax Credit payments with their tax records," the IRS said.
There's a glimmer of hope that the advance Child Tax Credit payments may not end this month, or may resume soon. Biden wants to extend the program another four years, through the end of 2025.
The legislation to extend the program is bundled into his $2.2 trillion Build Back Better Act bill, which faces tough odds in the U.S. Senate after narrowly passing the U.S. House of Representatives last month.
As for a fourth stimulus check, that's highly unlikely to happen. There's little appetite for it even among moderates in Congress, and budget hawks would be certain to try to kill any efforts to pass such a bill.