Child Tax Advance Credit Update
Recently many news outlets have been reporting a new “stimulus payment” coming in July. This has caused some confusion. There are no current plans for a fourth economic impact payment (EIP), but instead, the press is calling the upcoming advance child tax credit (CTC) payments a “stimulus payment.”
Earlier this week, the IRS announced it started sending letters to more than 36 million American families who, based on tax returns filed with the agency, may be eligible to receive monthly CTC payments starting in July. Families who are eligible for advance CTC payments will receive a second, personalized letter listing an estimate of their monthly payment, which begins July 15.
The payment will be up to $300 per month for each qualifying child under age 6 and up to $250 per month for each qualifying child ages 6 to 17. The IRS will issue payments on July 15, Aug. 13, Sept.15, Oct. 15, Nov. 15, and Dec. 15.
Eligible families have the option to receive the money now or may prefer to wait and claim the entire tax credit when they file their 2021 taxes next year.
Families who tend to owe money to the IRS when they file their taxes may want to use the full credit next year, as opposed to getting half of it in advance, because the benefit offsets what they ultimately have to pay.
Other families may want to opt-out of the advance credit because they’d rather get a large lump sum to spend at once instead of smaller amounts of money each month.
For many taxpayers, their tax refund is the largest windfall they see all year and is something they rely on in their budget. These families may be planning on a large tax refund to use for a purchase, such as a car or a refrigerator, or other household items.
Of course, because the credit is larger than in previous years, it’s not a given that those who do claim the advanced monthly payments will automatically see a smaller tax refund than they’re used to. Still, some families may prefer to get the extra cash at one time instead of having it spaced out.
For some families, likely those on the higher end of the income range eligible to receive the credit, receiving the monthly payments in advance may throw off tax planning they have in place.
Beware, this is not a stimulus payment and is an advance credit that will affect the outcome of your 2022 tax return. If you are unsure, we would recommend to opt-out of this program and claim this credit on your 2022 return. Further instructions will be available by the end of June.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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