It’s important to understand that with these payments, the IRS is essentially prepaying a tax credit that you usually receive when you file your taxes, said Ben Wacek, a Minnesota-based CFP and founder of Guide Financial Planning. “If you don’t usually receive a refund, then the advance payments could actually cause you to owe more when you file your 2021 taxes,” he said.  For a 10-year-old child, the credit was worth $2,000 in 2020, which lowered a family’s tax bill by that amount when they filed their return, Wacek explained. In 2021, the credit will be $3,000 for the same child, but half of it will be paid out in advance.  When that same family files their taxes next spring, there will only be $1,500 left of the child tax credit to lower their tax bill. Everything else being equal, they will owe $500 more in 2021 than they did in 2020, Wacek explained. “For this reason, if you usually owe when you file your taxes or cut it close, you might want to consider opting out of the advance payments or setting a portion of them aside to cover your tax bill in April,” he said. Who may need to be careful before spending There are many families who could be affected by this. If you switched to a higher-paying job, for instance, or your spouse went back to work after being unemployed for most or all of 2020, you could be in a higher tax bracket next year, which could change your tax math, said Matthew Saneholtz, a Florida-based CFP with Tobias Financial Advisors.

Also, if you sold property for a gain and therefore earned more income in 2021, you could possibly have to pay the credit back when you file your 2021 tax return because you owe more taxes than the credit is worth, Saneholtz said. If you fall into those categories or you can afford not to use the credit payments immediately, you may want to opt out, via an IRS portal that will be available soon, or at the very least, save half of each payment until you file your 2021 return. “I know [this is] not a fun answer, but nobody wants to be surprised by owing taxes,” Saneholtz said. Divorced parents should also be cautious, said Lili Vasileff, a Connecticut-based CFP and divorce expert with Wealth Protection Management. “This year marks a unique year for calculating child support and alimony because of the cash flow and tax credits available to [the] custodial parent,” she said.  It’s likely that the IRS will begin sending the advance payments to the parent who claims the child on their tax return in 2020, because the agency typically defaults to using the most up-to-date information on file.  “That can potentially raise issues for children who are moving between parents or households and share custody situations,” Elaine Maag, a research associate in the Urban-Brookings Tax Policy Center, previously told CNBC Make It. That’s especially true for parents who alternate years to claim the child tax credit, since one parent would be essentially getting the credit two years in a row.  There is a safe harbor for individuals making less than $40,000, or $60,000 for couples filing jointly. If you make less than this and receive an overpayment of the child tax credit this year, you will not need to repay the amount.  Of course, the safe harbor doesn’t apply to everyone. An upper-income family with divorced parents, which is where splitting tax years is a more common arrangement, is less likely to be protected if they make a mistake. What steps to consider taking To avoid running into issues, start by taking a look at your 2020 tax return to see where your finances stand. You can also consider talking to a financial professional about your situation ahead of the first IRS payment on July 15. The IRS is also set to release online portals in the coming weeks, including one that will help families determine whether they qualify for the payments.  One of the portals will allow eligible parents to opt out of the advance payment program. Doing this will ensure that eligible families will receive the entire child tax credit next year upon completing their taxes.  This week, the IRS rolled out the non-filer sign-up tool for those who didn’t file taxes in 2019 or 2020 and who didn’t previously register with the IRS for the pandemic stimulus payments. The tool allows parents and guardians to easily provide the IRS with information on themselves, their qualifying children or dependents and their bank to receive the payments.

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The IRS on Friday announced that it will start accepting and processing 2020 tax returns on Friday, Feb. 12. This is later than in most previous years, when tax season has started in January. The IRS says the delay is due to the extra time it needs for programming and testing its systems following the tax law changes made by the Consolidated Appropriations Act, 2021 (CAA 2021), P.L. 116-260, which was enacted Dec. 27. ​ According to the IRS, much of the additional programming stems from the second round of recovery rebate credits authorized by the CAA 2021, which taxpayers can claim on their 2020 returns if they do not receive an economic impact payment. ​ The IRS anticipates starting to issue refunds for taxpayers who claim the earned income tax credit and/or additional child tax credit in the first week of March, for taxpayers who file electronically and provide direct deposit information and have no other issues with their returns. The IRS says it expects more than 150 million tax returns to be filed this year.

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Under the $900 billion coronavirus relief package that Congress passed at the end of December, the IRS had until Jan. 15 to issue the $600 stimulus payments. Now that the deadline has passed, Americans who are eligible to receive the money but haven't yet must claim it as a credit on their 2020 returns. ​ If you don't receive the cash payment -- or get the wrong amount -- then you can claim a Recovery Rebate Credit on your 2020 tax return. The IRS will begin accepting returns on Feb. 12 — typically the agency opens tax season at the end of January — because it needs more time to ensure its systems can handle the credits that apply to the second stimulus payments. "This start date will ensure that people get their needed tax refunds quickly while also making sure they receive any remaining stimulus payments they are eligible for as quickly as possible," IRS Commissioner Chuck Rettig said. The Free File tool is available to anyone who earned $72,000 or less in 2020. American adults who earned less than $75,000 in 2019 will receive the full $600 check, while couples who earned less than $150,000 will receive $1,200. The payments will be tapered for higher earners (5% of the amount by which their adjusted gross incomes exceeded the initial threshold) and phased out completely for individuals who earn more than $87,000 and couples who earn more than $174,000.

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