Bank accounts of millions of Americans received a boost in July, as IRS issued the first round of payments under a new Child Tax Credit program. Roughly 60 million parents received Child Tax Credit payments in July, and others may be eligible. The new payments range up to $300 per child for eligible families.
Similar payments received prior to July, whether for Stimulus or Child Tax Credits, were essentially gifts to taxpayers. They had no effect on tax returns. Earlier or later, it was new money to the recipient, and had no effect on the regular tax refund (or tax due).
Parents everywhere have become accustomed to receiving IRS payments under various stimulus programs from the COVID-19 economic meltdown. But, if you received a check or a direct deposit starting in July, 2021, you need to see if you are truly qualified. There are definitive income restrictions. Further, you need to decide if you want payments in 2021, or if you’d rather wait until April 15, 2022, when tax returns are due. Before you make any decisions, here is what you need to know and understand.
The new round of “Tax Credits” is very inappropriately named. They are “prebates.” In other words, IRS is sending your own money back to you before you even pay it in. Every dollar you receive in 2021 will either lower your refund or raise your amount due. Wait, it gets worse.
Income used for determining eligibility for payments is from tax filings 2 or 3 years ago, and may not be relevant today. If you are earning substantially more this year, you may find that you are ineligible, yet receiving payments. IRS will “clawback” these payments, even if you already spent the money. You need to stop the payments now.
Opting out of future monthly Child Tax Credit payments is straight-forward. Go to the IRS website (www.irs.gov), and they will provide a calculator to test your eligibility, based on your 2021 income. If you are not eligible, opt out of further payments while on the website.
Avoid receiving a shock from your tax preparer in April, 2022. Know where you stand on the 2021 payments. While I believe that the government is not fulfilling its obligation to keep us adequately informed, stay safe by knowing where you stand.
Van Wie Financial is fee-only. For a reason.
