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.
Solid advice here! One of the things I have never understood is why people get all excited when they get a huge refund on their taxes. That just means the government has been using YOUR money for most of the year and sends the refund to you WITHOUT interest. But if you underpay, you have to pay it quickly or get slapped with fines and interest.
The Best Practice is to minimize your return without owing the government anything. If, as the year rolls along, you save or invest the money you would get from the huge return, you can make a lot more money than the government will give you.
Very true but most people getting huge refund these days are getting credits , meaning that it was never taken out of their paycheck. Some people get as much as $10k . Another way of subsidizing corporations who pay minimum wage.
True that getting credits is different from getting a refund.
How is getting a credit that one has not paid subsidization of a corporation? I do not understand. Please clarify.
My thought is that large companies need customers for their products but there are many people that are barely able to afford food and housing, so by providing these ‘credits’, the government helps keep the economy/businesses going. Maybe subsidy is the wrong word. I don’t like government manipulation of free markets, but I think it’s been this way for so long, we are in so deep, that this is just how it works in America. Govt and big business support each other to stay in power. They need voters and customers. I guess it could be worse, and it will be, when they no longer need voters.
Just one more thing I’m glad I don’t have to worry about since my son is grown.
Thank you for sharing this! I’m passing it along. 🙂
Glad it was helpful! Thanks for sharing!
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