Some people are excited about the news they could be getting more monthly payments from the government. However it is very important to get the facts! Here is what you need to know.
- This is NOT the same as a STIMULUS CHECK.
- This WILL affect next years TAX RETURN, the one for this year, 2021.
- If you depend on the Child Tax Credit to reduce how much you OWE in taxes, and you do not OPT OUT of advance child tax credit payments, you will OWE MORE on your 2021 taxes.
- If you take the advance payments, make sure you will be able to PAY your taxes in 2022 and won’t need that money for something else.
Biden Plan increased child tax credit for 2021
After writing this article I learned that the credit was increased from $2000 to $3600 per child under 6 and $3000 per child aged 6-17 . This change should be considered when making your decision.
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Who could be hurt by accepting these payments?
Anyone who is used to getting a child tax credit and not owing any taxes, but not getting much or any refund could have regrets.
In other words, if your child tax credit is JUST ENOUGH to cancel out what you normally would have to PAY in taxes, then you will be hurt if you take the money in advance and then don’t have the credit to cancel out that tax later.
For example: You owe $3000 in taxes, but thanks to the credit it gets reduced to zero. But if you already got the money, will you be able to pay the taxes?
What if I get the advance credit, but don’t actually qualify?
You will have to pay it back. Make sure your information is up to date. According to the IRS website :
However, the total amount of advance Child Tax Credit payments that you receive during 2021 is based on the IRS’s estimate of your 2021 Child Tax Credit. If the total is greater than the Child Tax Credit amount that you are allowed to claim on your 2021 tax return, you may have to repay the excess amount on your 2021 tax return during the 2022 tax filing season. For example, if you receive advance Child Tax Credit payments for two qualifying children properly claimed on your 2020 tax return, but you no longer have qualifying children in 2021, the advance Child Tax Credit payments that you received based on those children are added to your 2021 income tax unless you qualify for repayment protection.https://www.irs.gov/credits-deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-topic-a-general-information
What can you do?
Check last year’s or 2019’s tax return to help you decide if you will end up having to PAY BACK the credit in the form of uncredited taxes. If you want to OPT OUT , the IRS is going to have a portal available soon to sign up to NOT take the advance payments.
The link below will give more information. Save this link to return to if you want to opt out.
Who can safely take the payments?
Anyone with qualifying children and who does not have to pay taxes due to very low income and who does not expect to need their whole Tax Refund for a major purchase in 2022.
The Bottom Line:
Just remember , you are getting some of your 2021 TAX REFUND in advance. You will NOT get as big of a tax refund if you take the advance payments. You will get a smaller tax refund when you file in 2022. Make sure you are prepared to NOT get that money later.