Millions of American families will start receiving the advance child tax credit payments on July 15.

But before spending or stockpiling the enhanced credit, families should clarify whether they will have to pay the money back to the IRS next tax season.

“There will be a reconciliation,” Trenda Hackett, CPA and technical tax editor of the tax and accounting business at Thomson Reuters, told CNBC. “There could be some instances where your payment was in excess of what you were actually allowed on your tax return.”

The IRS determines eligibility for the child tax credit by using the adjusted gross income and the number of dependents from 2020 or 2019 tax returns. But for some families, income might have increased during 2021 or the number of dependents might have changed. That could mean that those families are eligible for a smaller amount of the child tax credit than what they previously qualified for and would have to owe the agency money.

Hackett also noted that parents who split custody of children could encounter a slew of issues if they switch who claims the dependent each year. So if one parent claimed the child in 2020 or 2019 and won’t claim them this year, the parent would have to pay back the child tax credit when they file taxes.

Hackett added that parents should opt out of the advance payments completely and have one parent claim the full credit as a lump sum to avoid any IRS related issues.

“Divorced parents should probably just opt out to keep the peace,” Hackett told the network.

Another reason that parents may owe money to the IRS after receiving the enhanced credit is if children who are 17 in 2021 turn 18 during the year.

The IRS will refer to 2020 or 2019 tax returns to calculate how much is sent to families but will reconcile the credit depending on the age of children on January 1, 2022. So if a child turns 18 this year, that could mean they are not eligible for the credit.

“If you have a 17-year-old on your 2020 tax return, but they’re going to be 18 by the end of 2021, they won’t qualify,” Hackett said.

It’s important for families to confirm that their information with the IRS is updated to avoid a tax bill next year. The IRS released the Child Tax Credit Update Portal that allows families to update their information with the agency.

President Joe Biden’s coronavirus rescue package passed in March boosted the child tax credit from $2,000 to $3,000 for children between the ages of 6 and 17 and allowed parents with children under the age of 6 to qualify for $3,600.

Rather than receiving the money as a lump sum, parents with children under the age of 6 will get $300 monthly payments per child from July through December, and those with children between the ages of 6 and 17 will receive $250 payments per child.

Individuals earning up to $75,000 are eligible for the full enhanced credit amount, as well as joint filers making up to $150,000 and heads of households earning up to $112,500. The amount will then drop by $50 for each $1,000 in income above these caps.

The payments will be distributed monthly, starting on July 15, followed by August 13, September 15, October 15, November 15 and December 15.

Rachel Bucchino is a reporter at the National Interest. Her work has appeared in The Washington Post, U.S. News & World Report and The Hill.

Image: Reuters