Can you get more money out of the 2021 child tax credit if you opt out now?
This week another round of monthly 2021 child tax credit payments will go out to families across the U.S. Eligibility was expanded in the spring when the American Rescue Plan was signed into law. This included individual earners of $75,000 or less, as well as couples who earn under $150,000.
It’s too late to opt out for the September payment, which will hit bank accounts in a matter of days, but there’s still time to opt out of October’s payment.
But why? It’s $250 to $300 per child under 17 that they will inevitably be eligible for. After all, whatever is not claimed through the 2021 child tax credit advance payments can be claimed on tax returns.
Even parents and families who receive the maximum per child under the 2021 child tax credit advance payments will still have $1,800 of eligibility when filing taxes next spring due to enhancements made by the Biden Administration through the American Rescue Plan.
Why are parents opting out of those monthly child tax credit payments?
Bigger Payments Await
Patience will pay off for families who can go without the monthly advance payments during 2021. They will turn to full-value tax credits, which can be utilized during income tax season. For example, a family with two children under 17 and one under 6 will be eligible for $9,600 instead of $4,800 if half of it was being paid out in recurring payments.
Income Changes
This has been a common one as working parents get back to their pre-pandemic jobs. While there are millions still without jobs in the U.S., over 10 million job openings, as well as looming COVID-19 vaccine mandates that could drive those numbers even higher – many who worked in offices and other settings saw their financial situation change little, or even improve during the pandemic.
The IRS has used past tax returns from 2019 and 2020 to determine eligibility in the 2021 child tax credit advance payments, so if things have changed dramatically in the last year – some families are deciding to wait on taking advantage.
After all, if you end up making more than the income limits outlined in the American Rescue Plan – barring an income limit change in the Build Back Better plan being debated by Congress now – some of the money paid out in 2021 could be owed in 2022 to the IRS.
Fear of IRS Mistakes
This has been a major component for families as the IRS sends out millions of audit letters and faces an internal 30+ million backlog of 2021 tax returns. Parents and families who know their financial situation has changed in the last two years have been preemptively opting out of fear that the IRS might make a mistake, or could potentially overpay based on a previous salary that simply doesn’t align with present earnings.
The advance payments on the 2021 child tax credit were intended to help families struggling financially. So many have taken the approach that, if not truly needed right this moment, hold off until tax season when the child tax credit would ordinarily be claimed and received.
What happens if you opt out of the remaining child tax credit payments?
Nothing seismic will occur. The payments will stop in October, meaning eligibility to claim the other half of the child tax credit will be effectively reduced by 25%.
Parents won’t have to pay anything back if they opt out for the remaining advance payments as long as their financial situation didn’t change. If it did, then consult with a tax professional for help on how to manage that situation.
Unenrolling for the October 15 payment comes with an October 4 deadline. You can click here and visit the IRS Child Tax Credit Update Portal to manage your account.
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