You may need to return part of the new $ 3,000 child tax credit

The IRS uses 2020 tax returns (or, if not available, 2019 returns) to determine taxpayer eligibility for the child tax credit and the amount of advance payments.

Prepayments add up to half of a taxpayer’s total credit by 2021. The American Rescue Plan raised the maximum credit amount to $ 3,000 for children ages 6 to 17 and $ 3,600 for younger children.

The remaining half would be claimed during the tax season next year.

The information reported in next year’s tax return may differ from current IRS data and therefore change the total amount of the credit.

This can happen, for example, if a taxpayer had another child in 2021. This can qualify him for an additional $ 3,600.

A tax bill can occur if a payer’s income increases dramatically this year from income reported in a 2020 return. This can reduce the amount of someone’s credit or directly disqualify them, based on earnings.

The $ 1.9 trillion Covid relief measure, signed by President Joe Biden in March, offers some protections to taxpayers to limit the scope of overpayment.

On the one hand, the law orders the Department of the Treasury to create an online portal for taxpayers to update information that changed during the calendar year.

By law, the portal must allow taxpayers to modify the following data: the number of qualified children (including birth), marital status, significant change in income and other factors that the Treasury deems appropriate.

The portal must also allow taxpayers to choose not to receive advance payments of the tax credit.

The IRS plans to launch the portal on July 1, agency commissioner Charles Rettig said during a Senate Finance Committee session last week.

It is unclear whether the agency will include additional details, such as a change of address or form of payment, such as direct deposit, tax experts said.

“We will launch on July 1 with the absolute best product we can create,” Rettig said. “We’re trying to make it as easy to use as possible,” he added.

Families without Internet access will be able to update the information by other means, such as on paper or visiting an IRS office, Rettig said at the hearing.

Prepayments will not be initiated until taxpayers have been given the opportunity to update the information and choose not to participate, he confirmed.

However, there may not be much time to modify the data before the IRS begins disbursing funds, said Nina Olson, executive director and founder of the Center for Taxpayer Rights.

“If the portal opens on July 1, but the first payments start on July 1, when is your window to deactivate or update it?” Olson asked.

However, some administrative issues may be understandable given the short period of time the IRS was directed to launch the program, he said.

“[The agency] it’s taking four months to deliver that thing, ”Olson said.

However, the lowest winners can be protected from having to return a portion of the funds.

According to the Congressional Research Service, up to $ 2,000 per child will be protected against depreciation if the error is due to net changes in the number of qualified children.

However, credit amounts in excess of $ 2,000 would still have to be repaid.

Single applicants with less than $ 40,000 in income qualify for the full “safe harbor” amount. (Heads of households and married couples who file a joint return meet the requirements if their income is less than $ 50,000 and $ 60,000, respectively).

The $ 2,000 protected amount is gradually phased out as revenue increases. Single applicants with incomes over $ 80,000 (or $ 100,000 for heads of households and $ 120,000 for joint applicants) will not be protected from any overpayment.

“People shouldn’t trust that,” Walker said of the safe harbor.

“What I would tell taxpayers is to pay attention to when the portal is available,” he added. “And think about what could be happening in 2021 that could affect the [credit] import “.