For some American families, opting out of the Child Tax Credit might be the best choice. This can reduce the tax bill and increase tax refund for next year.
Be warned, however, that there are only three days left before the deadline.
In July, the Biden Administration launched its advance Child Tax Credit, a program that budgets $3600 for children under age six and $3000 for children ages six to 17.
The government released half of these payments as advance Child Tax Credit this year. CTC issued $250 to $300 monthly payments, which started on July 15 and would end by December 15. Afterward, recipients have to complete their 2021 tax return to receive the rest.
Some might be curious why opting out of free money would be a good idea. However, there are a lot of benefits families can take advantage of if they miss the ongoing monthly payments.
3. Get CTC Payment in a Lump Sum
Keep in mind the ongoing payments are "Advance Child Tax Credit" because the government released the payment ahead of schedule. Child Tax Credit is a program based around 2021 tax returns, which will be completed in 2022.
Depending on the 2021 tax return, payments can increase or decrease. The key takeaway is that eligible families can still receive the full $3600 and $3000 payments next year after submitting their 2021 tax returns, which will be paid in a lump sum.
2. The Dependent's 2021 Age
IRS calculates its payments based on the dependent's age by December 31 this year. If the dependent moves out of the bracket, Child Tax Credit payments will be adjusted accordingly.
For example, a child who is five years old qualifies for $300 monthly payments. However, the child will turn six by December, meaning they should only be eligible for $250 payments. Any extra payments credited to this age mistake have to be reimbursed to IRS, which means a bigger tax bill.
1. Eligibility and Income by 2021
A dependent's age is not the only dangerous factor for reimbursement. Recipients who experience a sudden change in income status by 2021 are also subject to CTC payment adjustments.
Typically, IRS issues Child Tax Credit payments based on 2019 or 2020 tax returns, whichever was filed more recently. However, the final amount will be based on the 2021 tax return, so individual circumstances will matter.
For example, losing a job in 2019 and earning below $75,000 means they are eligible for Child Tax Credit. However, if their income went over $85,000 in 2020 or 2021, CTC might be considered an overpayment. Be warned that the government will reclaim overpaid money during tax season.
For readers who belong in any of these circumstances, it is suggested that they immediately opt out of Child Tax Credit payments. They can do this by visiting the IRS's Child Tax Credit Update Portal and clicking on "unenroll from monthly payments."
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