For families who want to opt out of receiving the advanced child tax credit payments that are set to start next month, the IRS now has a tool available to unenroll.
The child tax credit payments, which were set up and expanded under the American Rescue Plan passed earlier this year, amount to $3,000 annually per child ages 6 to 17 and $3,600 annually for children under 6.
Eligible families will receive half of their credit in the form of monthly payments of up to $250 per school-age child and up to $300 per child under 6 from July through December 2021. The other half will be paid out when they file their 2021 taxes. The credit is income-based and starts to phase out for individuals earning more than $75,000 a year or $150,000 for those married filing jointly.
The latest tool from the IRS allows families to check their eligibility, view the upcoming payments and unenroll from getting advanced payments. To use the portal, parents will need to have an existing IRS username or ID.me account, or enroll for one using a photo ID.
To stop advanced payments, families must unenroll three days before the first Thursday of the next month, according to the IRS. To opt out of the upcoming July 15 payment, families need to use the portal to unenroll by June 28, 2021.
The IRS also said that for parents who are married and filing jointly, both spouses must unenroll.
Those who unenroll will receive their payments as the full child tax credit when they file their 2021 taxes.
The IRS is set to send checks to 39 million eligible households on the following dates:
- July 15
- Aug. 13
- Sept. 15
- Oct. 15
- Nov. 15
- Dec. 15
It's important to understand that with these payments, the IRS is essentially prepaying a tax credit that you usually receive when you file your taxes, said Ben Wacek, a Minnesota-based CFP and founder of Guide Financial Planning.
"If you don't usually receive a refund, then the advance payments could actually cause you to owe more when you file your 2021 taxes," he said.
There are many families who could be affected by this. If you switched to a higher-paying job, for instance, or your spouse went back to work after being unemployed for most or all of 2020, you could be in a higher tax bracket next year, which could change your tax math, said Matthew Saneholtz, a Florida-based CFP with Tobias Financial Advisors.
Also, if you sold property for a gain and therefore earned more income in 2021, you could possibly have to pay the credit back when you file your 2021 tax return because you owe more taxes than the credit is worth, Saneholtz said.
If you fall into those categories or you can afford not to use the credit payments immediately, you may want to opt out, via the latest IRS portal. Or at the very least, save half of each payment until you file your 2021 return.
Sign up now: Get smarter about your money and career with our weekly newsletter
Don't miss: You may have to repay some of the advance child tax credit next year. Here's what to know
Source: Read Full Article