You may have to repay part of the new $ 3,000 child discount

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

The prepayments make up half of a taxpayer’s total credit for 2021. The American Rescue Plan increased the maximum credit amount to $ 3,000 per child ages 6 to 17 and $ 3,600 for younger children.

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

Information reported on next year’s tax return may differ from current IRS data – and therefore change the total amount of credit.

This could happen, for example, if a taxpayer were to have another child in 2021. This could qualify for an additional $ 3,600.

A tax bill can occur if a payer’s income rises dramatically this year from the income reported on a 2020 tax return. This can lower someone’s credit or disqualify them outright, depending on earnings.

The $ 1.9 trillion Covid exemption measure signed by President Joe Biden in March provides taxpayers with some protection to limit the size of overpayments.

First, the law directs the Treasury Department to create an online portal for taxpayers to update information that has changed during the calendar year.

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

The portal should also allow taxpayers not to receive advances on the tax credit.

The IRS is on track to launch the portal on July 1, agency commissioner Charles Rettig said at a hearing of the Senate Finance Committee last week.

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

“We will be launching by July 1 with the absolute best product we can put together,” said Rettig. “We try to make it as user-friendly as possible,” he added.

Families without Internet access will be able to update information in other ways, such as through a paper form or by visiting an IRS office, Rettig said at the hearing.

Down payments don’t start until the taxpayer has been given an opportunity to update information and opt out, he confirmed.

However, there may not be much time to adjust 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 unsubscribe or update?” Olson asked.

However, some administrative issues may be understandable given the short time frame in which the IRS was asked to start the program, she said.

“[The agency] will have four months to deliver this thing, ”said Olson.

However, lower earners can be protected from paying back some of the money.

According to the Congressional Research Service, up to $ 2,000 per child would be protected from reimbursement if the error is due to net changes in the number of eligible children.

However, credit amounts in excess of $ 2,000 should still be repaid.

Single filers with less than $ 40,000 in income are eligible for the full “safe harbor” amount. (Heads of households and married couples filing joint tax returns are eligible if their income is less than $ 50,000 and $ 60,000, respectively.)

The $ 2,000 protected amount gradually decreases as a person’s income increases. Individual filers with incomes in excess of $ 80,000 (or $ 100,000 for heads of household and $ 120,000 for joint filers) would not be protected from overpayments.

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

“What I would tell the taxpayer is, pay attention when the portal is available,” she added. “And think about what could happen in 2021 that could affect the [credit] amount.”