$3,000/$3,600 child tax credit: how and when to opt out from the stimulus
The IRS will be making it easy for parents to choose how they want to receive the 2021 Child Tax Credit, setting up two online portals if parents need them.
Beginning in July, 88 percent of children in the US could automatically receive a monthly payment or their parents could opt to defer that payment to next year when they file a 2021 tax return. The direct payments will be part of the Child Tax Credit, enhanced in the American Rescue Plan for the 2021 fiscal year.
The Internal Revenue Service (IRS) is setting up two online portals for parents that the agency has said will be ready by 1 July, the exact date has not been confirmed yet. One of the portals will serve to let parents opt out of the direct monthly payment system which will begin 15 July. The other will allow parents to update their information.
Why would a parent want to opt out of monthly payments?
Tax payers with children that filed a 2020 tax return will automatically be enrolled in the new Child Tax Credit program. And if they and their children meet the eligibility requirements those households will begin to receive advance monthly payments of up to $300 on the credit with no further action necessary.
Some parents, however, may want to opt out of the advance payments on the tax credit, or better said delay payment on the tax credit for their children. Since its creation in the late 90s the credit has been available to taxpayers when they file a tax return. Changes to the credit in 2017 made part of the credit refundable so taxpayers that claimed a child on their tax return could get any money left over from the credit as a refund. Now the whole of the increased credit, up to $3,600, will be refundable.
Many taxpayers knowing they will get a refund could use this as a savings strategy and receive the whole credit as a lump sum payment next year. In an interview with CNBC, economic policy expert Dr. Elaine Maag stated that “There’s evidence that shows that some people really like getting that large tax refund, and can use it as an opportunity to purchase a large household item like a refrigerator or put together first and last month’s rent so they can move.”
Other families, knowing that their financial situation in 2021 would make them ineligible or knowing they might be overpaid on the credit based on their 2020 tax return might also consider opting out of the advance payments. Although the legislation creates a “safe harbor” for lower- and moderate-income taxpayers, above a threshold taxpayers would need to repay any overpayments they received.
This year, families with qualifying children may receive part of their Child Tax Credit in 2021 -- before filing their 2021 tax return next year. Learn more from #IRS at https://t.co/535gR8FJvp pic.twitter.com/XbphZFbOPV— IRSnews (@IRSnews) May 25, 2021
Why would I want to update my information?
The second portal will allow parents to give the IRS the most up-to-date information about any changes to their family or economic circumstances. For example, if there is a change in household income making a taxpayer eligible for a larger payment, or inversely. New parents that have a baby this year and would like to start receiving the payments to help out with expenses could share that information with the IRS. Likewise, a family that adopts a child or takes on a new dependent.
Parents that share custody of a child, only the one who has custody more than half the year, will be eligible to receive the credit for the child. However, in the event that custody changes, that information can be provided to the IRS so the payments go to the correct parent.
For more information on the Child Tax Credit click here.
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