2021 Child Tax Credit Overpayment: Do You Owe the IRS?

Here's some potential good news for taxpayers who are worried about owing money.

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Key points

• Many people received monthly Child Tax Credit payments in 2021.
• If you received more than you were entitled to, you may not owe the IRS money.

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Filing a tax return can be a time-consuming process. But this year, filers may have an extra matter to deal with -- the Child Tax Credit.

Last year, the Child Tax Credit got a boost as part of the American Rescue Plan, the massive relief bill signed in March. Before 2021, the Child Tax Credit maxed out at $2,000 per child. Last year, that limit increased to $3,000 for children aged 6 to 17 and $3,600 for children under the age of 6.

Meanwhile, half of the Child Tax Credit was paid in monthly installments that hit recipients' bank accounts between July and December of 2021. The remaining half of the credit can be claimed on 2021 tax returns, which many people are in the process of preparing right now.

If you received more money from the Child Tax Credit last year than you think you were entitled to, you may be worried you'll now have to deal with owing the IRS money. But that may not be the case.

Not everyone will have to pay

Last year's full Child Tax Credit was available to single parents with an adjusted gross income (AGI) of under $75,000 and to married couples with an AGI of under $150,000. From there, the credit phased out and was off the table for single parents with an AGI of $95,000 and married couples with an AGI of $170,000.

Since the Child Tax Credit was based on income from 2019 or 2020, not everyone may have received the amount they were supposed to get. Some families may have received smaller payments than they were actually entitled to, while others may have received more money.

If you were underpaid on the Child Tax Credit, you can claim the difference on your 2021 tax return, which is due April 18 this year. But if you were overpaid, that's a different story.

Thankfully, some groups are protected from having to repay the IRS. Those married filing jointly or filing as a qualified widow won't have to repay the IRS if their 2021 AGI is $60,000 or less. For those filing as head of household, that threshold drops to $50,000. And for single tax filers or married people filing separately, it's $40,000.

Taxpayers whose income was higher last year may still get partial protection in the event of an overpayment. But that protection runs out at an AGI of $120,000 for married folks filing jointly and widowers, $100,000 for heads of household, and $80,000 for single tax filers or those who are married and filing separately.

What if you're not protected from a repayment?

Even if you end up having to pay the IRS back for a portion of the Child Tax Credit funds you already received, it doesn't mean you'll be writing out a check. If you're due a refund, the amount you owe can simply be deducted from it. Say you owe the IRS $500 back from the Child Tax Credit but the IRS owes you $800. In that case, you'd just get a lower refund.

Either way, keep an eye out for Letter 6419, which will summarize your Child Tax Credit payments for 2021. If that information doesn't look accurate, though, be sure to check it against your records, because there have already been reports of some of those letters containing erroneous information.