SAN ANTONIO — The first round of child tax credit payments will be deposited soon. Parents who qualify can receive monthly payments of up to $300 per child until the end of the year. Here are tips to manage that money wisely.
What is the Child Tax Credit?
This year, there are changes to the child tax credit under the American Rescue Plan Act, a law President Joe Biden signed into law in March. The goal is to provide a financial boost to Americans who are still facing hardship from the pandemic.
The payments will be determined by how many children you have, their ages and your income. In order to qualify, joint filers have to make less than $150,000 and single filers less than $75,000. The payment for children under the age of 6, is up to $300 per month and for kids between 6 and 17, the amount is up to $250 per month.
Should I stay enrolled or opt out?
The IRS will automatically enroll you in the program, if you filed taxes in 2019 or 2020. The money is not a stimulus payment. Rather, it’s an advance on the increased child tax credit you can claim on your 2021 taxes. This year, the IRS will issue half of the tax credit through monthly deposits until December. The second half can be claimed on the tax return that you file next year.
Experts recommend that if you do not need the extra money, consider opting out of the program. Instead, you can claim the full credit on your 2021 taxes. They say that will reduce how much you owe. Plus, you can avoid the risk of having to pay back the credit.
“Many people have a very different situation financially in 2021, than they did in 2020 during the pandemic. Some people got laid off, some people’s income went way down,” said Karl Eggerss, senior wealth advisor and partner of Covenant. “You really need to adjust for that. This is a great time to make sure because by the time December 31 rolls around, there’s not much you can do about adjusting any of these big figures. You don’t want to be stuck having to write a big check to the IRS.”
The deadline to unenroll for the first monthly payment has passed, but you can still opt out of the program for August. The IRS says it may take up to 7 calendar days for your unenrollment to process.
What’s the best way to use the extra money?
If you are planning to receive the advance tax credit payments, Eggerss recommends that you check out free tools like H&R Block and Texas Community Bank. The resources can give you a glimpse into the future and help determine your next step.
“There’s some great online calculators that allow you to plug in your income, how many kids you have, kind of your situation. It’ll estimate your taxes for free. It’s not going to be perfect, but it’s going to get you in the ballpark to really see what you might owe at the end of the year,” he said. “Then what you can do is look at your paychecks and see how much withholding your employer might be doing or if you’re self-employed, have you been making estimated taxes for example. Are you behind or are you ahead?”