(CBS Detroit) – Most parents will receive their next child tax credit payment on October 15. Monthly checks of up to $ 300 per child will continue until the end of 2021. And up to $ 1,800 more per child will arrive at tax time next year. The total deposit amount of each parent depends on their annual income, the number of children and the age of those children. When added up, the money can be more than any of the first three stimulus checks. But what if a parent wants to opt out of those down payments in favor of a one-time payment?
Updated credit eligibility
The updated child tax credit is based on the parents’ modified adjusted gross income (AGI) as reflected in their 2020 tax return. (AGI is the sum of salary, interest, dividends, alimony, retirement distributions, and other sources of income minus some deductions, such as interest on student loans, alimony payments, and pension contributions.) The amount gradually decreases to a minimum rate of $ 50 for each $ 1,000 of annual income over $ 75,000 for an individual and over $ 150,000 for a married couple. The benefit is fully refundable, which means that it is independent of the recipient’s current tax burden. Eligible families receive the full amount, regardless of what they owe in taxes. There is no limit to the number of dependents that can be claimed.
READ MORE: Child tax credit: when is your October payment due?
The IRS pays $ 3,600 per child to parents of children under the age of five. This increases to $ 3,000 in total for each child between the ages of six and 17. Half of the total is paid as six monthly payments and half as a 2021 tax credit. The IRS made a one-time payment of $ 500 for dependents aged 18 or full-time students. until the age of 24.
#IRSTaxTip: Non-traditional families can benefit from an advance # Child tax credit Payments. Check #IRS eligibility criteria and see if your family qualifies: https://t.co/9J5HB58rqX
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As an example, suppose a married couple have a four-year-old and an eight-year-old and have a joint annual income of $ 120,000 on their 2020 taxes. The IRS would send them a monthly check for 550. $ from July. That’s $ 300 per month ($ 3,600 / 12) for the youngest child and $ 250 per month ($ 3,000 / 12) for the older child. These checks would last until December. The couple would then receive the balance of $ 3,300 – $ 1,800 ($ 300 X 6) for the youngest child and $ 1,500 ($ 250 X 6) for the older child – as part of their repayment of 2021 tax.
Parents of a child outside an age bracket receive the lower amount. This means that if a five-year-old turns six in 2021, parents will receive a total credit of $ 3,000 for the year, not $ 3,600. Likewise, if a 17-year-old turns 18 in 2021, the parents received $ 500, not $ 3,000.
An increase in income in 2021 to an amount above the threshold of $ 75,000 ($ 150,000) could reduce a household’s child tax credit. The IRS has confirmed that it will soon allow applicants to adjust their income and custody information online, reducing their payments. Failure to do so could increase his tax bill or reduce his tax refund after the 2021 taxes are filed.
Eligibility requires that a dependent be part of the household for at least half of the year and be at least half supported by the taxpayer. A taxpayer who earns more than $ 95,000 ($ 170,000) – where the income limits gradually disappear – will not be eligible for the expanded credit. But they can still claim the existing credit of $ 2,000 per child.
Withdraw from advance payments
Parents who filed taxes in 2019 and / or 2020 and who qualify for income automatically started receiving child tax credit advance payments in July. But some parents may prefer a lump sum payment at tax time rather than monthly payments and a smaller tax credit. The deadline for opting out before the October 15 payment has already passed. But the deadline for opting out of the November 15 payment is November 1. (Subsequent withdrawal deadlines for future payments will occur three days before the first Thursday of the withdrawal month.)
The Child Tax Credit Update Portal allows users to ensure they are registered to receive advance payments, update bank account information for direct deposit, and change an address. It also allows beneficiaries to consult their payment history and to unsubscribe from advance payments in favor of a single credit when filing their 2021 taxes. The update of dependents and the evolution of income are d ‘other features to come on the portal.
To access this portal, users need an IRS username or ID.me account. ID.me is a login service used by various government agencies, including the IRS, Social Security Administration, and Department of the Treasury, to authenticate users. Users need a valid photo ID to create an account.
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From the portal page, a user should click on the “Manage Prepayments” button. Log into your account on the next page or create an account. Once logged in, a user can view their eligibility and change how credit will be received.
Reasons for refusing advance payments
Each household’s financial situation is unique. Every family manages their finances in the way that is best for them. And then there are simple questions of preference. For these and other reasons, the default scenario of monthly advance payments followed by a lump sum credit may not be ideal.
“This is an advance payment based on your estimated allowance, given your income in 2021, based on your income in 2020 or 2019,” says Stephen Nuñez, senior guaranteed income researcher at the Jain Family Institute. , an applied social science research organization. (Nuñez studies social assistance cash policy, which includes fieldwork to answer policy questions regarding the social safety net.) Away from your actual income.
Given the economy’s decline in 2020 compared to its boom in 2021, drastic changes in income seem plausible, if not expected. A parent who lost their job in March 2020 and found a new one in January 2021 could make more money this year than last year. However, the IRS will base her monthly child tax credit payments on her 2020 income. If the new job pushes her above the income threshold, the IRS will overpay her.
“Imagine a world where, based on your income in 2020, they give you $ 3,000,” Nuñez suggested. “It turns out that based on your income in 2021, you were actually only supposed to receive $ 2,400. Well, at tax time there would be a clawback. They’ll say, sorry, we’ve got you. overpaid because our estimate was incorrect, so you have to reimburse us $ 600.
The IRS will hold half of the comprehensive child tax credit in reserve. So, using the example of Nuñez, that $ 600 would not have to be repaid per se. It would simply be deducted from the other half of the credit. That parent would receive a $ 900 credit at tax time next year, rather than the $ 1,500 balance.
For families facing divorce or child custody issues, early child tax credit payments could create additional hardships. A divorce will divide a household into several households. The threshold of $ 150,000 for a married couple becomes $ 112,500 for each head of the new household. This could create complications depending on individual income and childcare. As Nuñez says, “If you’ve had a change in household makeup. Imagine if you were to divorce or have no more children and they send you $ 3,000 for a child you don’t have in your life. This money, you are going to have to pay it back.
The withdrawal of advance monthly payments in favor of a lump sum payment at the time of taxation would simplify the process of reorganizing a household into several households. It could also facilitate financial planning. The choice depends on individual circumstances. Monthly payments help people mitigate month-to-month income volatility and deal with unexpected expenses, like a car repair. A one-time payment allows people to be sure that they will have money for a larger purchase without putting that money aside themselves. It is a kind of induced savings plan.
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Nuñez linked the situation to research on the Earned Income Tax Credit (EITC), which is paid as a lump sum at the time of taxation. “Part of that is because some people really like the idea of getting all that money at the same time,” Nuñez said. “It helps them plan their big purchases, car down payments, refrigerator purchases, whatever. And that’s just the way they would prefer to receive their money. They may also, to be honest, have the impression that if they get the money every month, they will have a hard time putting money aside, calculating how much money to put aside, or maybe be that they will feel like it’s a temptation to spend it, rather than save it.