The advance child tax credit is a prepayment of the credit parents receive when doing their taxes. It provides extra money to parents who have children under the age of 16 throughout the year rather than them getting it in their tax refund.
CNBC explains that there are a few issues that could result from the advance child tax credit payments for some parents.
Smaller tax refund
Some parents rely on the large tax refund they receive each year to make major purchases or pay off debt. By receiving the advance child tax credit, there will a reduction in how much parents get back when they file their taxes. This could be problematic for some families.
Owing taxes
Some parents may use the child tax credit to help offset taxes they owe so they do not end up paying when they file their taxes. For those people, it is probably best to save the advance payments and use them to pay the taxes you will now owe.
Payback requirement
It is also possible that if a situation changes, parents may have to pay back the money. A good example is a family that earns more a year than they did before. In this case, you might no longer be eligible to take the child tax credit, so you will have to pay it back. This might also happen if your child reaches the age of 17 when he or she is no longer eligible for the credit.
Divorced parents
Divorced parents may run into issues because of claiming the children. Usually, parents will alternate, which means every other year, you do not get to claim the kids. If this is not your year to claim them, you will not get the credit, but the IRS may still send you the advance payments.
While the advance child tax credit payment may be helpful to some families, it can cause headaches for others.