Child tax credit payments... not understanding the point

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ParlayBogle
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Child tax credit payments... not understanding the point

Post by ParlayBogle »

Based on what I have read about the child tax credit payments due to go out, these seem to simply be advance payments of the credit that would already be received when filing taxes. If this is correct, do these do anything different than simply having your withholding properly adjusted?
Mindbender
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Re: Child tax credit payments... not understanding the point

Post by Mindbender »

The credit was increased compared to the previous year.
Last edited by Mindbender on Tue May 18, 2021 10:02 am, edited 1 time in total.
trueblueky
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Re: Child tax credit payments... not understanding the point

Post by trueblueky »

Child tax credits are refundable to some extent, so you could owe no tax and receive it.
donaldfair71
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Re: Child tax credit payments... not understanding the point

Post by donaldfair71 »

ParlayBogle wrote: Mon May 17, 2021 6:15 pm Based on what I have read about the child tax credit payments due to go out, these seem to simply be advance payments of the credit that would already be received when filing taxes. If this is correct, do these do anything different than simply having your withholding properly adjusted?
I just interpret it as an advance, to get more money in pockets of people who conceivably could use it better over the course of the year instead of waiting until tax filing season the following year b

It will be interesting to see the shock on the faces of those used to getting a bigger refund next March, as I’m not sure everyone will realize it’s an advance and not more stimulus.
rockstar
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Re: Child tax credit payments... not understanding the point

Post by rockstar »

Reduce childhood poverty and increase consumer spending. Both good things.
Katietsu
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Re: Child tax credit payments... not understanding the point

Post by Katietsu »

donaldfair71 wrote: Mon May 17, 2021 7:06 pm It will be interesting to see the shock on the faces of those used to getting a bigger refund next March, as I’m not sure everyone will realize it’s an advance and not more stimulus.
It will not lower the refund too much in 2022 vs the refund received in 2020. The child tax credit claimed in 2020 for 2019 was $2000 per child. Because of the increase in the child tax credit, the parent of an under 6 year old will still have $1800 left to claim on their return and the parent of a 6-17 year old will have $1500 of the credit not included in the advance.

But, otherwise, I agree with you. Can not really expect people to follow all these details when when it all seems so random and chaotic to the average person.
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dodecahedron
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Re: Child tax credit payments... not understanding the point

Post by dodecahedron »

ParlayBogle wrote: Mon May 17, 2021 6:15 pm Based on what I have read about the child tax credit payments due to go out, these seem to simply be advance payments of the credit that would already be received when filing taxes. If this is correct, do these do anything different than simply having your withholding properly adjusted?
Child tax credits are effectively a *negative income tax* for folks with sufficiently low incomes. Under the new law, even folks with zero income (and thus no withholding) are eligible for Child Tax Credit. So for those folks, many of whom are typically highly cash-constrained, the Advanced CTC payments are definitely not equivalent to simply readjusting withholding.
as9
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Re: Child tax credit payments... not understanding the point

Post by as9 »

It's a lot easier to understand the point if you imagine yourself making $30k/yr while raising three kids.
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UpsetRaptor
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Re: Child tax credit payments... not understanding the point

Post by UpsetRaptor »

donaldfair71 wrote: Mon May 17, 2021 7:06 pm
ParlayBogle wrote: Mon May 17, 2021 6:15 pm Based on what I have read about the child tax credit payments due to go out, these seem to simply be advance payments of the credit that would already be received when filing taxes. If this is correct, do these do anything different than simply having your withholding properly adjusted?
It will be interesting to see the shock on the faces of those used to getting a bigger refund next March, as I’m not sure everyone will realize it’s an advance and not more stimulus.
Fair point. E.G. for me, the total delta will be $1200, so if everything else stays comparable, instead of a refund of several hundred I'll probably owe several hundred come filing time. Now I personally of course realize this is due to the extra payments this year and I'm actually coming out ahead, and will have no qualms cash-flowing the payment. But will everybody?
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dodecahedron
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Re: Child tax credit payments... not understanding the point

Post by dodecahedron »

Katietsu wrote: Mon May 17, 2021 7:17 pm
donaldfair71 wrote: Mon May 17, 2021 7:06 pm It will be interesting to see the shock on the faces of those used to getting a bigger refund next March, as I’m not sure everyone will realize it’s an advance and not more stimulus.
It will not lower the refund too much in 2022 vs the refund received in 2020. The child tax credit claimed in 2020 for 2019 was $2000 per child. But only 1400 of that $2000 was refundable so many lower income folks faced a much lower ceiling than $2000Because of the increase in the child tax credit, the parent of an under 6 year old will still have $1800 left to claim on their return and the parent of a 6-17 year old will have $1500 of the credit not included in the advance. And under the new law for 2021, the credit is fully refundable, so the remaining $1800 or $1500 will exceed the $1400 refundable portion which is all that many lower income parents got.
Golfaddict
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Re: Child tax credit payments... not understanding the point

Post by Golfaddict »

ParlayBogle wrote: Mon May 17, 2021 6:15 pm Based on what I have read about the child tax credit payments due to go out, these seem to simply be advance payments of the credit that would already be received when filing taxes. If this is correct, do these do anything different than simply having your withholding properly adjusted?
Exactly. Right now you can claim a $2000 per dependent deduction on the W4 form. Those who have previously chosen that route could end up owing when they file (unless the child is under 6 years old).
Last edited by Golfaddict on Mon May 17, 2021 8:04 pm, edited 1 time in total.
donaldfair71
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Re: Child tax credit payments... not understanding the point

Post by donaldfair71 »

Katietsu wrote: Mon May 17, 2021 7:17 pm
donaldfair71 wrote: Mon May 17, 2021 7:06 pm It will be interesting to see the shock on the faces of those used to getting a bigger refund next March, as I’m not sure everyone will realize it’s an advance and not more stimulus.
It will not lower the refund too much in 2022 vs the refund received in 2020. The child tax credit claimed in 2020 for 2019 was $2000 per child. Because of the increase in the child tax credit, the parent of an under 6 year old will still have $1800 left to claim on their return and the parent of a 6-17 year old will have $1500 of the credit not included in the advance.

But, otherwise, I agree with you. Can not really expect people to follow all these details when when it all seems so random and chaotic to the average person.
Yup.

And if the advances continue, can’t wait to see the faces in 2023 when there’s no child credit at all!

Again, I don’t mind the advances and it helps people (including me). But I don’t know that everyone understands where it comes from or will care to learn.
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ParlayBogle
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Re: Child tax credit payments... not understanding the point

Post by ParlayBogle »

dodecahedron wrote: Mon May 17, 2021 7:19 pm
ParlayBogle wrote: Mon May 17, 2021 6:15 pm Based on what I have read about the child tax credit payments due to go out, these seem to simply be advance payments of the credit that would already be received when filing taxes. If this is correct, do these do anything different than simply having your withholding properly adjusted?
Child tax credits are effectively a *negative income tax* for folks with sufficiently low incomes. Under the new law, even folks with zero income (and thus no withholding) are eligible for Child Tax Credit. So for those folks, many of whom are typically highly cash-constrained, the Advanced CTC payments are definitely not equivalent to simply readjusting withholding.
Thanks, this makes sense.
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3CT_Paddler
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Re: Child tax credit payments... not understanding the point

Post by 3CT_Paddler »

rockstar wrote: Mon May 17, 2021 7:07 pm Reduce childhood poverty and increase consumer spending. Both good things.
Good point. Wouldn’t it be wonderful if the child tax credit was much bigger?! That would really reduce childhood poverty and increase consumer spending!
AnEngineer
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Re: Child tax credit payments... not understanding the point

Post by AnEngineer »

donaldfair71 wrote: Mon May 17, 2021 8:04 pm And if the advances continue, can’t wait to see the faces in 2023 when there’s no child credit at all!
Do you mean the extra $1000/1600 goes away, or the entire $3000/3600?
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Re: Child tax credit payments... not understanding the point

Post by cshell2 »

Golfaddict wrote: Mon May 17, 2021 8:03 pm
ParlayBogle wrote: Mon May 17, 2021 6:15 pm Based on what I have read about the child tax credit payments due to go out, these seem to simply be advance payments of the credit that would already be received when filing taxes. If this is correct, do these do anything different than simply having your withholding properly adjusted?
Exactly. Right now you can claim a $2000 per dependent deduction on the W4 form. Those who have previously chosen that route could end up owing when they file (unless the child is under 6 years old).
You can opt out of the advance if you want. The IRS is opening a portal this summer to allow you to do so.
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leeks
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Re: Child tax credit payments... not understanding the point

Post by leeks »

https://www.kiplinger.com/taxes/602334/ ... calculator

I had assumed with our high income this would not apply to us. But if this calculator us true, we will get $333/month July-Dec and also have a $2K remaining credit at tax time.
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Darth Xanadu
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Re: Child tax credit payments... not understanding the point

Post by Darth Xanadu »

leeks wrote: Tue May 18, 2021 8:53 am https://www.kiplinger.com/taxes/602334/ ... calculator

I had assumed with our high income this would not apply to us. But if this calculator us true, we will get $333/month July-Dec and also have a $2K remaining credit at tax time.
I don't get it either. Maybe the calculator means you get one or the other.
donaldfair71
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Re: Child tax credit payments... not understanding the point

Post by donaldfair71 »

AnEngineer wrote: Tue May 18, 2021 8:27 am
donaldfair71 wrote: Mon May 17, 2021 8:04 pm And if the advances continue, can’t wait to see the faces in 2023 when there’s no child credit at all!
Do you mean the extra $1000/1600 goes away, or the entire $3000/3600?
What I believe will happen, moving forward, is that the child care credit will continue to be paid in this manner: monthly, rather than waiting until tax time.

What this will lead to, and I’ve already tried to make mental accounting ahead of, is a lower tax refund all else equal at tax time. I’ve been receiving refunds for years in the 4k range (I know, inefficient to receive any refund, but I like the feeling). Well, while I’ll be happy to take the monthly advance in July (I have 3 kids) I’ll have to remember that come next tax time, all else equal, my refund will be less by $1200, down to $2800 (previously got 6k credit at tax time, in 2022 March I will get $4800). If this system of paying the credit monthly continues, all else equal, my refund will actually move into a situation where I’ll owe the government in 2023, as my entire child credit will be paid out over advancements in 2022. All else equal, I’ll owe 2k (since the entire $9600 credit will be paid out over 12 months in 2022 rather than just 6 months).

I hope this makes some sense. Again, I AM NOT COMPLAINING AND I THINK THIS IS A NET POSITIVE. But there are some, quite a few taxpayers, maybe the majority, who won’t have the money they’ve come accustomed to in returns the next few years.
Flyer24
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Re: Child tax credit payments... not understanding the point

Post by Flyer24 »

An off-topic troll about the number of kids was removed. Additionally, please do not respond when someone trolls a thread. Several replies were deleted.
AnEngineer
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Re: Child tax credit payments... not understanding the point

Post by AnEngineer »

donaldfair71 wrote: Tue May 18, 2021 10:10 am
AnEngineer wrote: Tue May 18, 2021 8:27 am
donaldfair71 wrote: Mon May 17, 2021 8:04 pm And if the advances continue, can’t wait to see the faces in 2023 when there’s no child credit at all!
Do you mean the extra $1000/1600 goes away, or the entire $3000/3600?
What I believe will happen, moving forward, is that the child care credit will continue to be paid in this manner: monthly, rather than waiting until tax time.

What this will lead to, and I’ve already tried to make mental accounting ahead of, is a lower tax refund all else equal at tax time. I’ve been receiving refunds for years in the 4k range (I know, inefficient to receive any refund, but I like the feeling). Well, while I’ll be happy to take the monthly advance in July (I have 3 kids) I’ll have to remember that come next tax time, all else equal, my refund will be less by $1200, down to $2800 (previously got 6k credit at tax time, in 2022 March I will get $4800). If this system of paying the credit monthly continues, all else equal, my refund will actually move into a situation where I’ll owe the government in 2023, as my entire child credit will be paid out over advancements in 2022. All else equal, I’ll owe 2k (since the entire $9600 credit will be paid out over 12 months in 2022 rather than just 6 months).

I hope this makes some sense. Again, I AM NOT COMPLAINING AND I THINK THIS IS A NET POSITIVE. But there are some, quite a few taxpayers, maybe the majority, who won’t have the money they’ve come accustomed to in returns the next few years.
Thanks for clarifying. I would not characterize this as "no child credit at all".
dalmatiandan
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Re: Child tax credit payments... not understanding the point

Post by dalmatiandan »

Could someone correct me if I’m wrong, please.

When this bill passed, I went to the IRS withholding calculator and entered my income information with as many knowable deductions as I have, including the new $3,600 child tax credit (for child under 6). I used the resulting calculation to adjust my W4.

I plan on opting out of the direct payments because, as I see it, I have already adjusted my withholdings to account for the tax credit which will become finalized when I file next year.

Am I missing anything? Sure, you need to be comfortable tweaking your W4 during the year, but otherwise I think this was a good way for me to start receiving the new increased tax credit earlier than A) July or B) next tax season.

Dan
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Re: Child tax credit payments... not understanding the point

Post by chipperd »

Don't mean to sidetrack, but the discussion triggered a question for me I can't find an answer to online:
Question: One of our dependents turned 18 in Feb. We qualify for the max amount under all the other criteria. What will the amount of tax credit will we get for a dependent who turned 18 a few months ago?
Thanks
Chipperd
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donaldfair71
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Re: Child tax credit payments... not understanding the point

Post by donaldfair71 »

AnEngineer wrote: Tue May 18, 2021 10:37 am
donaldfair71 wrote: Tue May 18, 2021 10:10 am
AnEngineer wrote: Tue May 18, 2021 8:27 am
donaldfair71 wrote: Mon May 17, 2021 8:04 pm And if the advances continue, can’t wait to see the faces in 2023 when there’s no child credit at all!
Do you mean the extra $1000/1600 goes away, or the entire $3000/3600?
What I believe will happen, moving forward, is that the child care credit will continue to be paid in this manner: monthly, rather than waiting until tax time.

What this will lead to, and I’ve already tried to make mental accounting ahead of, is a lower tax refund all else equal at tax time. I’ve been receiving refunds for years in the 4k range (I know, inefficient to receive any refund, but I like the feeling). Well, while I’ll be happy to take the monthly advance in July (I have 3 kids) I’ll have to remember that come next tax time, all else equal, my refund will be less by $1200, down to $2800 (previously got 6k credit at tax time, in 2022 March I will get $4800). If this system of paying the credit monthly continues, all else equal, my refund will actually move into a situation where I’ll owe the government in 2023, as my entire child credit will be paid out over advancements in 2022. All else equal, I’ll owe 2k (since the entire $9600 credit will be paid out over 12 months in 2022 rather than just 6 months).

I hope this makes some sense. Again, I AM NOT COMPLAINING AND I THINK THIS IS A NET POSITIVE. But there are some, quite a few taxpayers, maybe the majority, who won’t have the money they’ve come accustomed to in returns the next few years.
Thanks for clarifying. I would not characterize this as "no child credit at all".
Nor would I. Only that I think a large subset of the population, having spent the advanced money already, and not having done the mental accounting, *will* characterize it as such.

Or, more likely, only see that "my refund is smaller than it usually is".
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Re: Child tax credit payments... not understanding the point

Post by rob »

cshell2 wrote: Tue May 18, 2021 8:33 am
Golfaddict wrote: Mon May 17, 2021 8:03 pm
ParlayBogle wrote: Mon May 17, 2021 6:15 pm Based on what I have read about the child tax credit payments due to go out, these seem to simply be advance payments of the credit that would already be received when filing taxes. If this is correct, do these do anything different than simply having your withholding properly adjusted?
Exactly. Right now you can claim a $2000 per dependent deduction on the W4 form. Those who have previously chosen that route could end up owing when they file (unless the child is under 6 years old).
You can opt out of the advance if you want. The IRS is opening a portal this summer to allow you to do so.
I have a personal philosophy to take any money the IRS wants to send.... If you get the advance then I would take it now over waiting :-)
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
cshell2
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Re: Child tax credit payments... not understanding the point

Post by cshell2 »

rob wrote: Tue May 18, 2021 12:15 pm
cshell2 wrote: Tue May 18, 2021 8:33 am
Golfaddict wrote: Mon May 17, 2021 8:03 pm
ParlayBogle wrote: Mon May 17, 2021 6:15 pm Based on what I have read about the child tax credit payments due to go out, these seem to simply be advance payments of the credit that would already be received when filing taxes. If this is correct, do these do anything different than simply having your withholding properly adjusted?
Exactly. Right now you can claim a $2000 per dependent deduction on the W4 form. Those who have previously chosen that route could end up owing when they file (unless the child is under 6 years old).
You can opt out of the advance if you want. The IRS is opening a portal this summer to allow you to do so.
I have a personal philosophy to take any money the IRS wants to send.... If you get the advance then I would take it now over waiting :-)
Same. I see no advantage to opting out and waiting for the credit at filing.
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Darth Xanadu
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Re: Child tax credit payments... not understanding the point

Post by Darth Xanadu »

Darth Xanadu wrote: Tue May 18, 2021 9:41 am
leeks wrote: Tue May 18, 2021 8:53 am https://www.kiplinger.com/taxes/602334/ ... calculator

I had assumed with our high income this would not apply to us. But if this calculator us true, we will get $333/month July-Dec and also have a $2K remaining credit at tax time.
I don't get it either. Maybe the calculator means you get one or the other.
@Leeks do you have 2 kids? That's why I was confused -- I have 2 under 5 years old, so I get $2,000 each; half is being delivered as 6 monthly payments of $333, and the other half is $2k credit on 2021 tax return.
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leeks
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Re: Child tax credit payments... not understanding the point

Post by leeks »

Darth Xanadu wrote: Tue May 18, 2021 1:22 pm
Darth Xanadu wrote: Tue May 18, 2021 9:41 am
leeks wrote: Tue May 18, 2021 8:53 am https://www.kiplinger.com/taxes/602334/ ... calculator

I had assumed with our high income this would not apply to us. But if this calculator us true, we will get $333/month July-Dec and also have a $2K remaining credit at tax time.
I don't get it either. Maybe the calculator means you get one or the other.
@Leeks do you have 2 kids? That's why I was confused -- I have 2 under 5 years old, so I get $2,000 each; half is being delivered as 6 monthly payments of $333, and the other half is $2k credit on 2021 tax return.
Yes ages 7 and (almost) 5, income is over $300K so I had been assuming it would not apply to us
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Darth Xanadu
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Re: Child tax credit payments... not understanding the point

Post by Darth Xanadu »

leeks wrote: Tue May 18, 2021 2:54 pm
Darth Xanadu wrote: Tue May 18, 2021 1:22 pm
Darth Xanadu wrote: Tue May 18, 2021 9:41 am
leeks wrote: Tue May 18, 2021 8:53 am https://www.kiplinger.com/taxes/602334/ ... calculator

I had assumed with our high income this would not apply to us. But if this calculator us true, we will get $333/month July-Dec and also have a $2K remaining credit at tax time.
I don't get it either. Maybe the calculator means you get one or the other.
@Leeks do you have 2 kids? That's why I was confused -- I have 2 under 5 years old, so I get $2,000 each; half is being delivered as 6 monthly payments of $333, and the other half is $2k credit on 2021 tax return.
Yes ages 7 and (almost) 5, income is over $300K so I had been assuming it would not apply to us
I don't think a MFJ couple loses the base Child Tax Credit until >$400k. You only lose out on the incremental / new 2021 amounts. I could be wrong, but that's how I figured it...I'm still getting $4k but now half is being advanced is all. Just timing.
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