Coming to some households near you - the advanced child tax credit.
For some families, there is a new wave of stimulus checks that about to start arriving next month, in the form of the prepaid federal child tax credit payments. A quick recap about the child tax credit payments, before we share the bad news:
Some working families will get the full credit if they make less than $150,000 for a couple, and less than $112,500 for a family with a single parent, head of household, and $75,000 for a single parent, filing separately will qualify for the series of six monthly payments, which are set to start on July 15 and run through the end of this year. They’ll include either $250 or $300 per month for each eligible child that a family has, and then whatever amount those six checks add up to together, that same amount will also be delivered to the family next year, too, in the form of a credit when that family files its federal taxes.
While these are a series of stimulus checks that families are just a few weeks away from receiving, you really have to look at them collectively, as one single amount of money that families are eligible for. What families are actually eligible for is a payment of up to $3,600 for each child under the age of 6, and $3,000 for every child between ages 6 and 17. Half of the amount will be paid as the tax credit next year, while the other half will take the form of monthly checks.
But here’s the most important point about all this. The monthly checks actually represent a prepaid federal tax credit. Because families are getting are getting half of the money upfront, though, there’s a danger. If you don’t usually receive a tax refund, then the advance payments could actually cause you to owe more when you file your 2021 taxes next year. In other words, if you normally owe money after you file your federal tax return, you will actually owe more taxes next year. This is going to make tax planning crucial this year.
Some parents might actually want to think about refusing the upcoming child tax credit payments. At a minimum, set aside part of the windfall you get from the child tax credit payments to cover your anticipated tax bill next year as you will need to repay the credit come tax time.
The IRS has opened an online site to enable taxpayers to unenroll from receiving advance payments of the 2021 child tax credit (CTC).
The new “Child Tax Credit Update Portal” allows parents to view their eligibility, view their expected CTC advance payments, and, if they wish to do so, unenroll from receiving advance payments (i.e., to opt out). Unenrolling may be desirable if, for instance, taxpayers expect the amount of tax they owe to be greater than their CTC refund when they file their 2021 tax return.