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About 39 million American households will receive the first of six advance monthly payments of the increased federal child tax credit on July 15.
However, some of those households should elect not to receive the monthly payment, financial experts say, and instead wait to claim the full credit when they file their 2021 taxes next year.
In June, the IRS opened an online portal for families to notify a government agency that they do not wish to receive advance payments.
“Allowing the ability to opt out of these payments is important because we don’t know how people budget their tax refunds,” said Ellen Maag, a principal research associate at the Urban-Brookings Tax Policy Center. “And so if it’s important for them to get this credit as a one-time payment, we want to make sure people still have that option.”
If a household has not yet enrolled for advance monthly payment, they will actually receive it this month through direct deposit or paper check, as the last day for updating preference for July disbursements was June 28. However, families can still ask the IRS not to send payments going forward, which means they won’t get the money for the remaining five months until the end of the year.
a credit against the money owed
Families that owe money to the IRS when they file their taxes may want to use the full credit the next year, as opposed to getting half of it upfront, because benefits will eventually be paid to them. have to do.
“It’s an astonishing amount of protection for the IRS to owe,” Mag said.
The increased child tax credit is part of a US rescue plan signed into law by President Joe Biden in March. For 2021, the credit increases from $2,000 to $3,000 per child under age 17 and provides an additional $600 benefit for children under age 6.
This can either come in monthly payments – $250 per month for children ages 6 to 17 and $300 per month for children under 6 – or be claimed as a lump sum on 2021 taxes. could.
The full credit is available to all children under the age of 17 and families with 2020 or 2019 adjusted gross income of less than $75,000 for single parents and $150,000 for married couples filing jointly, and ends for individuals earning $95,000 and married couples earning $170,000 jointly. However, they will still be eligible for the regular Child Tax Credit.
lump sum amount to spend
Other families may want to opt out of advance credit as they will have to spend a large lump sum amount at one go instead of a smaller amount every month.
For many Americans, their tax refund is the biggest unexpected thing they see all year and is something they count on in their budget. These families may be planning a large tax refund to use for purchases, such as a car or refrigerator or other household item.
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“We don’t want to take that ability away from people,” Mag said.
Of course, because the credit is larger than in previous years, it is not granted that those who claim an advance monthly payment will automatically see a smaller tax refund than before. Still, some families may prefer to receive the extra cash at the same time, rather than keep it aside.
For some households, possibly those who are eligible to receive the credit at the higher end of the income range, receiving monthly payments in advance may put off the tax planning they have.
This generally applies to households that not only have income from wages but may come from capital gains or other money and so the IRS withholds more than the standard amount that is often taken out of biennial paychecks by the employer.
“If they suddenly get a delivery of $2,000 or $1,000 during the year, there could be a mismatch when it comes to filing their tax return,” Mag said.
Thus, they can choose to utilize the entire credit while filing for any tax offset. If they don’t have any additional tax liability, they will get the money back in a refund.
To see how much you can expect to receive, personal finance website Grow created a calculator that weighs your filing status, annual income, and the number of dependents you have.