Use Caution with Monthly Child Tax Credit
Tax professionals are urging clients to decline receiving monthly payments of the child tax credit.
Use caution when opting into the monthly child tax credit. Individuals could end up having to pay that money back. The 2021 American Rescue Plan increased the benefit and directed the delivery of half of the amount that families are eligible for in checks at the start of July. The payments are valued at $300 / month for children under 6, and up to $250 / month for children ages 6-17.
The changes were created by the Biden Administration to lower the child poverty rate. However, tax professionals are worried about clients being forced to pay money back come next filing season. This could be a result of changing circumstances with their jobs or salaries. Professionals urge clients to opt out of these payments unless they are experiencing financial hardships and require the assistance.
Why Be Cautious
The IRS is using income information from previous years to determine who is eligible for this payout. However, the credit owed is ultimately determined by 2021 income. This means an increase in pay between 2019 and 2020 could result in the IRS sending too much money. In this case, individuals could find themselves owing money back to the IRS to make up the difference. This could also occur if a child no longer qualifies as a dependent in 2021.
The IRS is soon expected to release a tool that will allow people to opt out of monthly payments. This tool is also supposed to allow individuals to update their current information in order to avoid overpayment from the IRS.
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