While millions of parents in the U.S. rejoiced upon seeing the first of six monthly child tax credit payments in their bank accounts this July, some tax experts cautioned that they could be in for a big surprise come tax season.
For the first time in America's history, the child tax credit scheme is being rolled out monthly instead of annually based on the size of the household or the taxpayer's income from 2020 or 2019. From July to December 2021, taxpayers eligible for this credit will automatically receive the staggered payments on their bank accounts or through a mailed check.
This monthly benefit from the government is considered an early payment of a household's assumed child tax credit for 2021. However, according to CNN, when some parents file their latest tax returns come spring, they could end up getting a smaller refund, or worse, owe the Internal Revenue Service (IRS) more money.
Tax season comes every April when taxpayers reconcile the monthly child tax credit payments from the actual amount they qualify for. Only families whose annual income is lower than $50,000 are not required by law to pay any excesses.
Why Excess Payments Could Happen
Since the IRS has based the credit on the taxpayers' 2020 or 2019 income, they will need to pay the credits back if they make more money on their 2021 tax returns. However, in 2020, many families had lower incomes because of the pandemic job cuts or temporary closure of establishments due to the lockdowns.
Tax expert Norman Golden expects that many families will be confused by the "free money" from the government when they reconcile their taxes, especially if they have gone back to regular work, received a raise from their employers, or had more sources of income where they no longer qualify for the child tax credit.
The expert suggested that parents aware that they will have a higher income this year should opt out of the monthly child tax credit payment now and wait for the determined lump sum amount in April 2022.
"You don't want to have a surprise next year when you file your return and have to pay it back," Golden said.
Mom Denise Powell said that this is a "huge boon" for parents if they do owe the IRS next year because the monthly child tax credit payments are helping families pay for childcare, extend their household budget, or get out of debt today.
For parents who don't want a tax headache in the spring, it's not yet late to opt out. They can go to the IRS Child Tax Credit Update Portal at any time and unenroll their profiles for the monthly rollouts.
For payments coming on August 13, the second round of child tax credit, the deadline for opting out on the portal is on August 2. For succeeding dates, taxpayers may unenroll on or before August 30, October 4, November 1, and November 29.
Married taxpayers or joint filers have to unenroll individually as well. If you choose to unenroll, you will no longer be able to re-enroll for monthly payments.
© 2021 ParentHerald.com All rights reserved. Do not reproduce without permission.