You may need to repay the IRS some or all of the advance Child Tax Credit payments that you received during 2021 if the total amount of those payments exceeds the Child Tax Credit amount that you can properly claim on your 2021 tax return. However, you might qualify for repayment protection, which can reduce or eliminate the amount you need to repay.
The total amount of advance Child Tax Credit payments you received was based on the IRS’s estimate of the amount of Child Tax Credit you may properly claim on your 2021 tax return. If this estimate was higher than the actual amount you are eligible to claim, the excess amount must be reported as additional income tax on your 2021 tax return.
Repayment protection can reduce your tax liability from excess advance Child Tax Credit payments. The full repayment protection amount is calculated as $2,000 multiplied by the difference between the number of qualifying children used to determine your advance payments and the number of qualifying children you can claim on your 2021 tax return. This protection amount is subject to phase-out based on your modified adjusted gross income (AGI).
For example, if you received advance payments for two qualifying children based on your 2020 tax return but no longer have qualifying children in 2021, the advance payments received for those children would be added to your 2021 income tax unless you qualify for repayment protection. The IRS provided tools such as the Child Tax Credit Update Portal to help recipients manage their advance payments and avoid repayment issues.
In summary, whether you need to repay any of the advance Child Tax Credit payments depends on the difference between the advance payments received and the actual Child Tax Credit you are eligible to claim, as well as your eligibility for repayment protection.
Sources:
Notice 2021-45
§ 24. Child tax credit
