The Internal Revenue Service announced a few months back that the child tax credit will have its advanced payments like the premium tax credit. While the child tax credit is significantly higher than the premium tax credit and it’s more accessible to taxpayers, it’s now a question of whether or not it’s worth getting the advanced payments. In this article, we’ll go over the advantages and disadvantages of receiving advanced child tax credit payments, explain how to enroll and unenroll, and answer the commonly asked questions.
Why advanced CTC payment is good
The advanced child tax credit payments might be a good thing for your taxes for several reasons. The cost of raising a child has been on the rise for several reasons and for some families, it’s hard to keep up even though we wish otherwise. If you’re having a hard time keeping up with your children’s expenses, the advanced tax payments provide a stable source of income that supports these expenses. Although $300 per month may not be much, it’s better than not having anything at all. The amount is even higher every month per child under the age of 6. If you have multiple kids, the amount you’ll get each month is going to be a significant amount that’s sizable that can make a difference in your monthly cash flow.
Even if you don’t make any use of the advanced tax payments, you can keep them in your bank account without seeing its existence. This can help you save up on the side the same as if you were to get the full payment on your tax refund.
Why advanced CTC payment is bad
Aside from getting monthly support to take care of your child, there are reasons that why the advanced child tax payments might be bad for your finances. First and foremost, not every taxpayer qualifies for the full amount. The total you’ll get from the advanced child tax credit payments is about $1,500. If you qualify for less than that, you’ll owe Uncle Sam, like the advanced premium tax credit. Assuming you wouldn’t want that, it isn’t a good idea to enroll if you expect to receive less than half of the full tax credit.
Another reason why the child tax credit isn’t good for your finances is when and how much you receive. If you get the advanced payments, you will reduce the amount of the credit you receive. This is bad for a number of reasons as you don’t get to reduce your tax liability as much as you would and miss out on a bigger payment.
By enrolling in advanced payments, you reduce your refundable portion of the credit by half, to $1,500. Some people prefer getting the full amount in a single payment; some prefer to receive a portion of it on a monthly basis. It all comes to preference. Have enough cash flow to support your child without looking for an extra somewhere? The advanced child tax credit payments aren’t the best for you then. If you look for extra here and there, it’s safest to let the advanced tax payments be on your account than not.
Will I get enrolled in the advanced payments automatically?
Taxpayers that filed their 2020 tax returns that qualify for the child tax credit are automatically enrolled in the advanced payments. You will receive your first advanced payment on August 2021 and unlike some of the other tax provisions where you need to sign up for a payment, you’ll have to unenroll yourself from the advanced child tax payments.
How much is the advanced CTC payment?
Starting from August, the advanced child tax credit per month is $250 per children ages between 6 and 18 and $300 per child under the age of 6. Taxpayers that get a reduced child tax credit due to their income aren’t subject to these changes. The advanced CTC payment is the same regardless of adjusted gross income.
Will the advanced payments affect my taxes?
The advanced tax payments are going to affect taxpayers in different ways. If you expect to receive a partial child tax credit, there is a good chance that you will owe money for the amount received in excess of the credit.