Monthly payments are advances on your tax refund and could cause a surprise next tax season.
This March, in an effort to combat the effects of the current pandemic, the government passed The American Rescue Plan Act of 2021, also called the COVID-19 Stimulus Package. Among other things, this bill set up monthly payments for taxpayers with children. The payments were $250 for children ages 6-17 and $300 for children under 6. What a lot of people don’t realize is that this payment is an advance on the Child Tax Credit which they normally claim when filing their yearly tax return.
The amount and ages eligible have been raised for 2021; $3000 for children under 18 (up from age 17 in 2020) and $3600 for children under 6. But getting this type of advance can cause a surprise next tax season if a taxpayer were to receive all six allocated payments for one of their dependents.
For example, if the taxpayer normally received the full $2000 for a child under 17 in 2020 they now would be eligible for $3000 and would start receiving $250 per month. If they were to receive the six payments from July to December they would have received an advance of $1250 and their credit on their 2021 return would go down to $1750. This amount could make some taxpayers refund either less or flip to them having a balance due.
For this reason, it may be a good idea for some taxpayers to opt out. If you have questions about the Child Tax Credit Monthly payments please give us a call at 610.586.5074 or contact us and we can review your individual situation to help you determine the right course of action.