On Tuesday, the IRS launched an online tool that allows families to opt out of advance monthly payments of the new Child Tax Credit, which are slated to begin on July 15. Instead, they can receive their entire credit as a lump sum when they file their 2021 tax return next year.
The Child Tax Credit Update Portal allows parents to verify that they qualify for the enhanced credit, worth $3,000 to $3,600 per child annually, and unenroll from advance payments, under which families receive $250 to $300 per month from July through December.
You have until June 28 to unenroll if you want to skip the July 15 payment.
One group that should hold out for the lump sum: those who don't expect to receive a refund come tax time. The program is essentially prepaying a credit that you usually receive when you file your taxes, so "if you don't usually receive a refund, then the advance payments could actually cause you to owe more when you file your 2021 taxes," Ben Wacek, a Minneapolis-based certified financial planner, recently told CNBC.
A major boost in income this year, like a substantial raise, a big windfall from a property sale, or a spouse returning to work, is another reason for caution. If your 2020 income qualifies you for the Child Tax Credit but you move into a higher tax bracket in 2021, you'll have to pay back the IRS.
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"For anyone, owing the IRS money at tax time can be a frightening prospect," Elaine Maag, a principal research associate at the Urban-Brookings Tax Policy Center, recently told Grow.
You may also want to consider going for the lump sum if you and your partner are separated and claim your children as dependents in alternating years. If you claimed your kids as dependents in 2020, opting out ensures that your spouse will be able to claim the benefit on their 2021 return.
Families that plan to live outside the U.S. for more than half of 2021 should unenroll as well, according to the IRS.
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