Child Tax Credit: Why It May be Bigger Than Expected and How It May Affect Your 2022 Taxes

Beginning July 15, the Internal Revenue Service (IRS) and Treasury Department stated that the vast majority of American households with children will get up to $300 per month, per child automatically.

Families who qualify for the Child Tax Credit, which was extended as part of President Joe Biden's $1.9 trillion American Rescue Plan, will get monthly payments from the IRS without having to do anything else, according to the IRS. Initial eligibility will be based on tax returns filed in 2019 or 2020.

The Child Tax Credit was increased from $2,000 to $3,000 for children above the age of six and $3,600 to $3,600 for children under the age of six. The White House declared June 21 as "Child Tax Credit Awareness Day," which featured a visit by Vice President Kamala Harris to a Pittsburgh recreation facility.

Harris praised the proposal to a crowd at the Brookline Memorial Recreation Center, citing an administration projection that, when paired with other relief efforts, five million children will be lifted out of poverty this year, cutting the total child poverty rate in half. President Biden referred to the program as the "largest-ever Child Tax Credit" in a statement released on June 21.

In addition, the Biden administration established a website with information on the tax credit. According to the IRS, the benefits will be paid every month. Even if they did not submit their taxes completely, anyone can apply for the program.

Why your Childs Tax Credit payments might be bigger

The Child Tax Credit was not only increased from $2,000 to $3,600 under the Rescue Plan but it was also converted into monthly payments. In most cases, families must wait until they file a tax return to obtain the benefit.

Nonetheless, Biden's administration stated that the tax relief will be delivered to households in the form of monthly payments. The age limit for dependents was likewise raised from 16 to 17 years old under the American Rescue Plan, as per The Sun.

A family's income must be less than $150,000 for a couple and $112,500 for a single parent to qualify for the full benefit. If a family has already submitted a 2019 or 2020 tax return, payments will begin to be made automatically every month until December 15.

According to the White House, 80% of American families will get the $300 payments via direct deposit without having to do anything. It went on to say that the remaining families will receive a paper check at the same time.

Like stimulus payments, Enhanced CTC checks are only accessible to qualified lower- and middle-income families, and the IRS will transfer the cash directly into their bank accounts. There is a major variation in how the IRS handles overpayment, as per CBS News.

Will your 2022 taxes be affected by the Child Tax Credit?

Mark Jaeger, Vice President of Tax Operations at TaxAct, told CNET that Child Tax Credit checks do not qualify as income, therefore you won't have to pay income taxes on the payments. These checks are referred to by the IRS as "advance" payments made in advance of the 2021 tax season.

"That means you're simply getting the payments sooner rather than waiting to receive that money when you file," he explained.

While you will not be required to pay 2022 the taxes on the payments you get this year, you may be required to reimburse the IRS portion of the "advance" payment when you submit your income tax return in 2022.

The IRS will send a letter to families who received Child Tax Credit payments in January 2022 detailing the total amount they received in 2021. Keep this letter, which the IRS refers to as Letter 6419, since you'll need information from it when you submit your 2021 tax return next year.

The IRS will automatically send you half of your projected amount this year unless you unenroll, or opt-out, of the monthly child tax credit payments. By foregoing monthly payments, you will instead get one substantial payout when you file your taxes in 2022, rather than seven smaller installments.

If you get paid more than you are entitled to for whatever reason, you may be required to refund some of the money. That might be the case if one of your family members gets a better-paying job, pushing you out of your previous income bracket, or if one of your children reaches a certain age group.