Why some families may want to opt out of the child tax credit payments starting in July. - CNBC
For some families, it may make more sense to claim the enhanced child tax credit as a lump sum when they file 2021 taxes instead of monthly payments
"It's important to allow that ability to opt out of these payments because we don't know how people have budgeted their tax refunds," said Elaine Maag, a principal research associate at the Urban-Brookings Tax Policy Center. "And so if it's important to them that they receive this credit as one lump sum payment, we want to make sure people still have that option."
A credit against money owedFamilies who tend to owe money to the IRS when they file their taxes may want to use the full credit next year, as opposed to getting half of it in advance, because the benefit offsets what they ultimately have to pay."It's protection from owing a surprise amount of money to the IRS," said Maag.
The enhanced child tax credit was part of the American Rescue Plan signed into law by President Joe Biden in March. For 2021, the credit increases to $3,000 from $2,000 per child under the age of 17 and gives an additional $600 benefit for children under the age of 6. headtopics.com
VIDEO1:4101:41How much money you'll have if you wait until 30 to start maxing out your 401(k)Invest in You: Ready. Set. Grow.That can either come in monthly payments — $250 per month for children between the ages of 6 and 17 and $300 per month for those under the age of 6 — or can be claimed as a lump sum on 2021 taxes.
The full credit is available to all children ages 17 and under in families with 2020 or 2019 adjusted gross income of less than $75,000 for single parents and $150,000 for a married couple filing jointly, and ends for individuals earning $95,000 and married couples filing jointly making $170,000, though they'd still be eligible for the regular child tax credit.
A lump sum for spendingOther families may want to opt out of the advance credit because they'd rather get a large lump sum to spend at once instead of smaller amounts of money each month.For many Americans, their tax refund is the largest windfall they see all year and is something they rely on in their budget. These families may be planning on a large tax refund to use for a purchase, such as a car or a refrigerator or other household item.
"We don't want to take away that ability from people," said Maag.Of course, because the credit is larger than in previous years, it's not a given that those who do claim the advanced monthly payments will automatically see a smaller tax refund than they're used to. Still, some families may prefer to get the extra cash at one time instead of having it spaced out. headtopics.com
Tax planningFor some families, likely those on the higher end of the income range eligible to receive the credit, receiving the monthly payments in advance may throw off tax planning they have in place.This generally applies to families who not only have income from wages but might have capital gains or other money coming in and so have the IRS withhold more than the standard amounts often taken out of biweekly paychecks by an employer.
"If they all of a sudden get $2,000 or $1,000 delivered to them during the year, there may be a mismatch when they come to file their tax return," said Maag.Thus, they may also prefer to use the entire credit when they file to offset any taxes they may owe. If they don't have any additional tax liability, they'd get the money back in a refund.
To see how much you could expect to receive, personal finance websitethat weighs your filing status, annual income and the number of dependents you have.SIGN UP:. Read more: NBC News »
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