By now, you are probably aware that under the American Rescue Plan parents with children are eligible for a tax credit that will arrive in the form of monthly checks or deposits that they will receive for the rest of the year. Kiplinger.com offered some specifics about the July to December child tax credit payments since because it is not as simple as it sounds.
For one thing, it is not just payments that are being given; it is a tax credit. Rather than have people who are in financial distress wait until they file taxes next year to get they relief, the government decided to offer up to half of the credit via monthly payments for the rest of 2021.
As much as we all welcome more money, there may be situations in which the tax credit payments will not improve someone’s financial outlook because of overpayment—
>> If you think you are doing well financially and would prefer to get the entire tax credit on your 2021 taxes.
>> If your income increased in 2021 (since payments are based on 2019 or 2020 taxes).
>> If you are divorced and claim your child on your taxes every other year.
>> If your adjusted gross income exceeds certain amounts, you will be expected to pay the government back if you receive too much money. (Others whose income is under certain thresholds will not have to pay back any overpayments under a “safe harbor” rule.)
If you think that you may be in the group that would receive overpayments, the IRS has an online tool you can use to opt out of these payments. That way you can take the complete tax credit on your 2021 taxes. Also important to know: each individual in a married couple must opt out of receiving the payments. If only one spouse opts out, the household will still get one-half of the payments the couple would have received.