Families with children received an extra boost this year when President Joe Biden’s $1.9 trillion coronavirus relief package introduced a new way to pay old-school Child Tax Credits. Rather than wait for tax time to claim the credit, the amount received per child has been increased and will now be sent to families monthly.
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Why opt out?
If you decide that you would rather receive your Child Tax Credit in 2022 when you file your tax returns, it may be due to one of these reasons:
1. You’re nervous you’ll owe taxes
You know you’re likely to have a large tax bill due for 2021 and would prefer to leave the Child Tax Credit “on account” to help cover the expected tax bill. For example, if you’re self-employed and concerned that you’re not keeping enough out to cover taxes, the Child Tax Credit could help.
2. You want to give your child a leg up
Your child is moving into adulthood, and you would like to hand the funds to them in one lump sum. Let’s say you have a child turning 18 and about to leave for college. Rather than accept monthly checks on that child’s behalf, you would prefer to receive the entire Child Tax Credit as part of your tax refund and present those funds to your child to be used while they’re away.
3. You have a significant expense on the horizon
You have a considerable expense coming up next year and would like to “save” the Child Tax Credit to pay for it.
4. You have a new child on the way
You’re adding a new child to your family between now and the end of the year and don’t want to go through the hassle of updating your number of children with the IRS.
5. Your marriage is in trouble
Things are less than peaceful at home, you’re considering a breakup, and believe financial issues would be a little less confused if you and your partner both opted out for now. Then, you can revisit the Child Tax Credit topic early next year when it’s time to fill out your 2021 tax returns.
Note: If you are married, you and your spouse must each elect to opt out of monthly payments.
Single taxpayers with an annual income of $75,000 or less, heads of households earning $112,500 or less, and married couples with an income of $150,000 or less qualify for the full credit. Those with higher incomes receive reduced amounts until the tax credits are phased out entirely. Families that earn too much to qualify for the enhanced Child Tax Credit are still eligible for the regular tax credit, currently at $2,000 per child under the age of 17 by Dec. 31, 2021.
If you’re not sure if your family qualifies, the IRS Advance Child Tax Credit Eligibility Assistant can help you determine if you are eligible, and if so, how much you can expect to receive.
How much families can expect
The new law temporarily raises the amount of the credit. As a result, children ages five and younger will receive credits worth $3,600, and children from six to 17 will each receive $3,000. That means that for the rest of 2021, families can expect to receive $250 per month for kids over the age of five and $300 per month for each child five or younger.
How long it will last
Right now, the monthly payments are scheduled to end in December, with families filing for the “other half” of their full tax credits when they file their 2021 taxes. The end date is not written in stone, though. Most Democrats (and some Republicans) are calling for monthly Child Tax Credits to become permanent.
If you decide to opt out
It’s too late to opt out for the July payment (the deadline was yesterday), but you can still stop the remainder of monthly payments — as long as you do so by the deadline to unenroll.
Unenrolling is as easy as going to the IRS Child Tax Credit Payment page and clicking on “Unenroll from advanced payments.” From that point, follow the prompts.
The Child Tax Credit intends to make life a little easier for families with children. While you don’t usually have options regarding when the credit will hit your bank account, you have a bit more control this year. It’s up to you to decide how the credit can be of the most benefit to your family.
View more information: https://www.fool.com/the-ascent/personal-finance/articles/stimulus-update-5-reasons-to-opt-out-of-monthly-advanced-child-tax-credit-payments/