The federal government is handing out a lot of money to Colorado Springs individuals lately. Remember those stimulus payments that started showing up in your bank account last year? There’s more en route…
Now comes the federal advance payments of the Child Tax Credit (CTC). Money for having kids? Sounds like a great idea.
Maybe and maybe not.
If it’s not such a good idea for your particular situation, Monday, Aug. 2 is the deadline for declining the latest payout (today as I’m writing this).
But how do you know whether to decline the payments or not? This week’s note should help you decide…
Should Colorado Springs Parents Take The Child Tax Credit Payments?
“A good plan violently executed now is better than a perfect plan executed next week.” -George S. Patton
The American Rescue Plan Act passed last spring expanded the CTC to provide families with up to 3,600 dollars per child for 2021. The government generally determines eligibility based on information you gave them on your federal tax return for 2019 and 2020.
The payment schedule and who qualifies
The advance payments, paid against a total, started in mid-July. The payment to you could be up to 300 dollars per month for each qualifying child under the age of six and up to 250 dollars a month for each qualifying child between ages 6 and 17.
The remaining advance payments are coming Aug. 13 and will continue on the 15th of each month through the end of 2021. Half the total credit amount will be paid in advance monthly payments; you claim the other half when you file your 2021 income tax return next year.
Single filers in Colorado Springs qualify for the credit if their annual modified adjusted gross income is up to 75K, and the limit is up to 150K for those married filing jointly.
You have to claim your child as a dependent on your tax return to qualify. Your child must be 17 or younger and a U.S. citizen, national or resident alien, with a valid SSN. They also have to reside with you for at least half of the year and be related to you, and you have to provide at least half of their financial support.
If you opt out of the monthly payments but still end up qualifying based on your 2021 returns, you can receive the full sum when you file this year’s tax return in 2022.
You may qualify – but you may not want it
So why should you turn down free money now?
For one, if you won’t qualify for the credit based on your 2021 tax situation but you did qualify based on your 2019 or 2020 returns, your friendly IRS may require you next spring to repay some or all of the monthly payments. (The IRS does have a program where you might not have to repay in certain circumstances and if you meet certain income thresholds.)
Money against future pay can often eventually catch you short. If you receive and spend these advance payments, the remaining Child Tax Credit you can claim next April or October may not be enough to offset other income on your return. You may have to pony up for a tax bill.
Also, both Colorado Springs parents have to opt out or as a couple you’ll still receive half your monthly payment.
Other reasons you might want to opt out or make sure the IRS has the right information about you:
– The CTC covers kids up to 18 years old. If your child turns 18 in calendar year 2021, your credit goes bye-bye. The IRS (which has been known to make mistakes) should take this into account when estimating your monthly payment. If they goof and keep sending you the payment, you’ll likely have to pay it back. The same holds true if your child turns 6 this year and your advance payment should be less.
– Divorced couples often switch off taking their kids as deductions from year to year on tax returns. A parent who took the deduction on a 2019 or 2020 return might qualify for the advanced payment in the eyes of the IRS — except that maybe mom or dad isn’t taking the deduction in 2021, creating a mistaken advance payment.
The IRS has an online portal where you can un-enroll and check other questions about you and the CTC. To stop the payments, you need to create an account with the IRS using a third-party app called ID.me (the word we’re hearing is that this app requires patience). You’ll also need a government-issued photo ID.
You can opt out every month this year before the next payment, the deadline being three days before the first Thursday of every month.
Remember, we’re happy to answer any of your questions about this sometimes-confusing tax credit.
For a look at your personal financial situation, and how we can help you make the right, tax-advantaged moves NOW … we’re right here: 719-260-0320
Keeping you informed,