Opt out for Advance Child Tax Credit payments available at IRS.gov
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Opt out for Advance Child Tax Credit payments available at IRS.gov
I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Why would you not want the extra cash flow now?aprilcpa wrote: ↑Tue Jun 22, 2021 8:44 am I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Take with a grain of salt, but I believe some taxpayers may be in the position of receiving the monthly checks today, but if their income rises for tax year 2021, they have to pay all of that money back come tax time this coming April. Someone please fact check me.anon_investor wrote: ↑Tue Jun 22, 2021 8:46 amWhy would you not want the extra cash flow now?aprilcpa wrote: ↑Tue Jun 22, 2021 8:44 am I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
If you still owe taxes at the end of the year is it really extra cash flow? Wouldn't it make more sense to opt out and just make sure you've used the IRS calculator to get your withholdings dialed in?anon_investor wrote: ↑Tue Jun 22, 2021 8:46 amWhy would you not want the extra cash flow now?aprilcpa wrote: ↑Tue Jun 22, 2021 8:44 am I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
- anon_investor
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
But with the time value of money, wouldn't it be better to have an interest free loan from the Federal government for 9 months?sapphire96 wrote: ↑Tue Jun 22, 2021 8:48 amTake with a grain of salt, but I believe some taxpayers may be in the position of receiving the monthly checks today, but if their income rises for tax year 2021, they have to pay all of that money back come tax time this coming April. Someone please fact check me.anon_investor wrote: ↑Tue Jun 22, 2021 8:46 amWhy would you not want the extra cash flow now?aprilcpa wrote: ↑Tue Jun 22, 2021 8:44 am I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
- anon_investor
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Maybe cash flow was the wrong word, it is an interest free loan from the Federal government. If someone is within the withholding safe harbor, I don't see why they would not want that extra cash now to invest and just pay 2021 taxes in 2022. My perspective may be different than others, since I always just try to barely get into the withholding safe harbor and glady pay my taxes in April.Onlineid3089 wrote: ↑Tue Jun 22, 2021 8:49 amIf you still owe taxes at the end of the year is it really extra cash flow? Wouldn't it make more sense to opt out and just make sure you've used the IRS calculator to get your withholdings dialed in?anon_investor wrote: ↑Tue Jun 22, 2021 8:46 amWhy would you not want the extra cash flow now?aprilcpa wrote: ↑Tue Jun 22, 2021 8:44 am I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
- sapphire96
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Mathematically, I agree with you. But what is the money going to be invested in? Best reasonable case is a savings account earning 0.5%. Risky to invest in stocks. I Bonds have the one year lock up. Is going through all of the hassle worth a few tens of dollars?anon_investor wrote: ↑Tue Jun 22, 2021 8:49 amBut with the time value of money, wouldn't it be better to have an interest free loan from the Federal government for 9 months?sapphire96 wrote: ↑Tue Jun 22, 2021 8:48 amTake with a grain of salt, but I believe some taxpayers may be in the position of receiving the monthly checks today, but if their income rises for tax year 2021, they have to pay all of that money back come tax time this coming April. Someone please fact check me.anon_investor wrote: ↑Tue Jun 22, 2021 8:46 amWhy would you not want the extra cash flow now?aprilcpa wrote: ↑Tue Jun 22, 2021 8:44 am I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
Keep interest as your friend, not your foe. |
Use money as a tool for bettering your life, not squandering it. |
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Yes, that is the case.sapphire96 wrote: ↑Tue Jun 22, 2021 8:48 amTake with a grain of salt, but I believe some taxpayers may be in the position of receiving the monthly checks today, but if their income rises for tax year 2021, they have to pay all of that money back come tax time this coming April. Someone please fact check me.anon_investor wrote: ↑Tue Jun 22, 2021 8:46 amWhy would you not want the extra cash flow now?aprilcpa wrote: ↑Tue Jun 22, 2021 8:44 am I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
At this point I am undecided what I will do. I was just putting the info out there in case anyone was interested.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Exactly, if you put it into a .5% savings account you'll get a total of about $5 in interest combined on all of the $300 monthly payments.sapphire96 wrote: ↑Tue Jun 22, 2021 8:54 amMathematically, I agree with you. But what is the money going to be invested in? Best reasonable case is a savings account earning 0.5%. Risky to invest in stocks. I Bonds have the one year lock up. Is going through all of the hassle worth a few tens of dollars?anon_investor wrote: ↑Tue Jun 22, 2021 8:49 amBut with the time value of money, wouldn't it be better to have an interest free loan from the Federal government for 9 months?sapphire96 wrote: ↑Tue Jun 22, 2021 8:48 amTake with a grain of salt, but I believe some taxpayers may be in the position of receiving the monthly checks today, but if their income rises for tax year 2021, they have to pay all of that money back come tax time this coming April. Someone please fact check me.anon_investor wrote: ↑Tue Jun 22, 2021 8:46 amWhy would you not want the extra cash flow now?aprilcpa wrote: ↑Tue Jun 22, 2021 8:44 am I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
If you put an extra $300 into the stock market over the next six months and get 10% you'll end up with about $100 for the risk of being down by half of it if the market tanks.
Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Because I have already adjusted my witholding to get that cash flow (for years now) . If they send me checks and don't tell employers to change the withholding tables to reflect it I'm just going to owe money next spring.... I'm over the income threshold for the extra credits but the website is fuzzy on if I would get any payments so I opted out anyway just to be safe.anon_investor wrote: ↑Tue Jun 22, 2021 8:46 amWhy would you not want the extra cash flow now?aprilcpa wrote: ↑Tue Jun 22, 2021 8:44 am I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
As I said in previous threads on this topic, this "advance payment" is really only a benefit for folks that where in the lowest tax brackets and already had a zero tax bill, to be able to get an advance on the refundable credit.
Last edited by jharkin on Tue Jun 22, 2021 12:57 pm, edited 2 times in total.
Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
This irks me that it's opt out. If you don't read that letter they send you carefully (the consequences of the letter are not pronounced), it will screw up your tax planning. You could potentially be penalized for under-withholding. Some folks might not be in a position to repay come next April if they're required to and could get hit with penalties. It's like a giant check advance scheme where you're automatically enrolled and could later be subject to interest and penalties if you unwittingly play your cards wrong. Except the government failed to provide the normally-required fine print.
Now it's make-work for me to opt out and it's all because the authorities want me to spend now, regardless of whether it's good for me or not.
JT
Now it's make-work for me to opt out and it's all because the authorities want me to spend now, regardless of whether it's good for me or not.
JT
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
A big reason to opt out is parents who alternate claiming the child. The parent who claimed in 2020 will get an advance tax credit if they don't opt out, but will then have to pay it back when they file 2021.
Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
We're in the phase out and it's not clear yet where our AGI will be for 2021 compared to 2020. I was going to opt out, but since we have a new baby the IRS doesn't know about yet it's probably at worst going to even out come tax time.
I definitely find it confusing though in terms of how it changes the tax situation / withholding.
I definitely find it confusing though in terms of how it changes the tax situation / withholding.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Another thing that irks me is that they could change their mind mid stream, like they did with the unemployment in 2020. Part of me thinks that they could come back and say that you don't have to repay it. So if I opt out and don't get it and they do that, I will have missed out.bottlecap wrote: ↑Tue Jun 22, 2021 9:16 am This irks me that it's opt out. If you don't read that letter they send you carefully (the consequences of the letter are not pronounced), it will screw up your tax planning. You could potentially be penalized for under-withholding. Some folks might not be in a position to repay come next April if they're required to and could get hit with penalties. It's like a giant check advance scheme where you're automatically enrolled and could later be subject to interest and penalties if you unwittingly play your cards wrong. Except the government failed to provide the normally-required fine print.
Now it's make-work for me to opt out and it's all because the authorities want me to spend now, regardless of whether it's good for me or not.
JT
Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
If you file jointly both spouses have to create IRS accounts and verify identities to opt out. The process is a bit of a pain.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
How are federal withholdings treated in light of this advanced child tax credit? 2021 effective withholdings = 2021 actual withholdings - 2021 advance child tax credits received?anon_investor wrote: ↑Tue Jun 22, 2021 8:53 amMaybe cash flow was the wrong word, it is an interest free loan from the Federal government. If someone is within the withholding safe harbor, I don't see why they would not want that extra cash now to invest and just pay 2021 taxes in 2022. My perspective may be different than others, since I always just try to barely get into the withholding safe harbor and glady pay my taxes in April.Onlineid3089 wrote: ↑Tue Jun 22, 2021 8:49 amIf you still owe taxes at the end of the year is it really extra cash flow? Wouldn't it make more sense to opt out and just make sure you've used the IRS calculator to get your withholdings dialed in?anon_investor wrote: ↑Tue Jun 22, 2021 8:46 amWhy would you not want the extra cash flow now?aprilcpa wrote: ↑Tue Jun 22, 2021 8:44 am I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
If someone has their 2021 actual withholdings dialed in to perfectly equal their 2021 federal tax liability (including all correct CTC calcs), then there would be a dollar-for-dollar liability come tax time (April 2022) of any 2021 advance child tax credits received? And there would be an underwithholding penalty if not within safe harbor?
On the other hand, if the underwithholding penalty were calculated based on withholdings, not (withholdings - CTC), that could be interesting....
Edit: Also, do these advance CTC payments adjust for phase-out regions? Or is it the full amount?
Last edited by FrugalProfessor on Tue Jun 22, 2021 10:08 am, edited 1 time in total.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Because I already adjusted my w4s in March.anon_investor wrote: ↑Tue Jun 22, 2021 8:46 amWhy would you not want the extra cash flow now?aprilcpa wrote: ↑Tue Jun 22, 2021 8:44 am I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Yup, I have a feeling my daughter's biological father is going to get an unwelcomed surprise April '22.BogleTaxPro wrote: ↑Tue Jun 22, 2021 9:20 am A big reason to opt out is parents who alternate claiming the child. The parent who claimed in 2020 will get an advance tax credit if they don't opt out, but will then have to pay it back when they file 2021.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Grrr.. sigh.
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
in one of the pages, it said that in small print. it wasn't a big warning.
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
My goodness. It's as if they DON'T want you to unenroll.mw1739 wrote: ↑Tue Jun 22, 2021 10:14 am See FAQ J6 and J7:
https://www.irs.gov/credits-deductions/ ... e-payments
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
I’m not sure how high the chances are but there exists the possibility that the under-withholding penalty might be forgiven. There is even the chance that those who receive the credit upfront but then find out they’re ineligible due to having too much income might be forgiven too. The possibility of “forgiveness” is part of the consideration these days.FrugalProfessor wrote: ↑Tue Jun 22, 2021 10:03 amHow are federal withholdings treated in light of this advanced child tax credit? 2021 effective withholdings = 2021 actual withholdings - 2021 advance child tax credits received?anon_investor wrote: ↑Tue Jun 22, 2021 8:53 amMaybe cash flow was the wrong word, it is an interest free loan from the Federal government. If someone is within the withholding safe harbor, I don't see why they would not want that extra cash now to invest and just pay 2021 taxes in 2022. My perspective may be different than others, since I always just try to barely get into the withholding safe harbor and glady pay my taxes in April.Onlineid3089 wrote: ↑Tue Jun 22, 2021 8:49 amIf you still owe taxes at the end of the year is it really extra cash flow? Wouldn't it make more sense to opt out and just make sure you've used the IRS calculator to get your withholdings dialed in?anon_investor wrote: ↑Tue Jun 22, 2021 8:46 amWhy would you not want the extra cash flow now?aprilcpa wrote: ↑Tue Jun 22, 2021 8:44 am I am not sure how many here it would affect, but the sign up for opting out of the advance child tax credit payments is now available here: https://www.irs.gov/credits-deductions/ ... ts-in-2021
Basically, the IRS is going to pay those who qualify advance payments of their child tax credit beginning in July 2021. Payments will be made automatically unless the taxpayer opts out.
If someone has their 2021 actual withholdings dialed in to perfectly equal their 2021 federal tax liability (including all correct CTC calcs), then there would be a dollar-for-dollar liability come tax time (April 2022) of any 2021 advance child tax credits received? And there would be an underwithholding penalty if not within safe harbor?
On the other hand, if the underwithholding penalty were calculated based on withholdings, not (withholdings - CTC), that could be interesting....
Some recent examples of forgiveness:
https://www.healthinsurance.org/faqs/wh ... -repay-it/
https://www.google.com/amp/s/finance.ya ... 00191.html
https://www.google.com/amp/s/www.foxnew ... iction.amp
Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Thank you for providing the additional information. Very much appreciated.mw1739 wrote: ↑Tue Jun 22, 2021 10:14 am See FAQ J6 and J7:
https://www.irs.gov/credits-deductions/ ... e-payments
Why do some people not like the advanced payments for child tax credit?
[Thread merged into here --admin LadyGeek]
I see several threads over the past months griping about the the new advance payments (Jul-Dec 2021) on the Child Tax Credit. I know there are people who are going to opt out of the payments.
I'm just trying to understand a situation where advance payments are bad. I'm sure there must be scenarios in which this is the case. I guess my imagination is lacking to come up with one. Probably influenced by my situation in which the payments are welcome.
The reason I've heard several times is that people have already carefully adjusted their withholding so that their amount owed on federal tax return comes out near zero (near zero owed/refunded). But I don't understand how the advance payments would negatively affect that.
It helps me to have some numbers to work with. Here's a hypothetical scenario with round numbers to make the math easy:
Family of 2 adults, 2 children. Both kids above 6 years old.
Income is low enough that full child credit applies.
Old credit was $2000/child == $4000 credit/year.
New credit will be $3000/child == $6000 credit/year. (Total credit is now $2000 larger)
2020 (old):
Family typically owes $12,000 each year in federal income tax. They adjust withholding on paychecks to be about $1,000 per month. (12K/year)
Result= about $0 owed/refunded on tax return.
2021 (new):
Leave withholding at $1,000 per month.
1/2 of the $6000 CTC ($3000) will be paid in monthly installments during 2020.
On 2021 tax return, full $6000 CTC is claimed. Some was advance paid, but they still claim the full credit on the tax return.
Now since their total child credit is $2,000 larger, the family will expect to owe $10,000 in taxes. They have left their withholding at $12,000/year.
They get a $2,000 tax refund.
Is this the reason people don't like the change? Because the credit increased, they need to adjust their withholding to keep their tax bill/refund near zero? To me, that's just the nature of an increasing credit (or decreasing for that matter). The fact that there are advanced payments has nothing to do with tax liability. What am I not understanding?
I see several threads over the past months griping about the the new advance payments (Jul-Dec 2021) on the Child Tax Credit. I know there are people who are going to opt out of the payments.
I'm just trying to understand a situation where advance payments are bad. I'm sure there must be scenarios in which this is the case. I guess my imagination is lacking to come up with one. Probably influenced by my situation in which the payments are welcome.
The reason I've heard several times is that people have already carefully adjusted their withholding so that their amount owed on federal tax return comes out near zero (near zero owed/refunded). But I don't understand how the advance payments would negatively affect that.
It helps me to have some numbers to work with. Here's a hypothetical scenario with round numbers to make the math easy:
Family of 2 adults, 2 children. Both kids above 6 years old.
Income is low enough that full child credit applies.
Old credit was $2000/child == $4000 credit/year.
New credit will be $3000/child == $6000 credit/year. (Total credit is now $2000 larger)
2020 (old):
Family typically owes $12,000 each year in federal income tax. They adjust withholding on paychecks to be about $1,000 per month. (12K/year)
Result= about $0 owed/refunded on tax return.
2021 (new):
Leave withholding at $1,000 per month.
1/2 of the $6000 CTC ($3000) will be paid in monthly installments during 2020.
On 2021 tax return, full $6000 CTC is claimed. Some was advance paid, but they still claim the full credit on the tax return.
Now since their total child credit is $2,000 larger, the family will expect to owe $10,000 in taxes. They have left their withholding at $12,000/year.
They get a $2,000 tax refund.
Is this the reason people don't like the change? Because the credit increased, they need to adjust their withholding to keep their tax bill/refund near zero? To me, that's just the nature of an increasing credit (or decreasing for that matter). The fact that there are advanced payments has nothing to do with tax liability. What am I not understanding?
Re: Why do some people not like the advanced payments for child tax credit?
Here are a couple:
Your 2021 income is expected to increase and make you ineligible for the credit.
You have dependents that you have agreed to alternate claiming each year with another taxpayer.
Your 2021 income is expected to increase and make you ineligible for the credit.
You have dependents that you have agreed to alternate claiming each year with another taxpayer.
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Re: Why do some people not like the advanced payments for child tax credit?
There are a number of reasons. If you know you won't qualify and will have to pay it back, it's a waste of time, energy and another thing to remember when filing taxes for a few dollars in interest.
You need to ask yourself why the government is doing this? The government does this and many of these gimmick advanced tax payments because they are trying to trick the general public. They know that if they inject a small amount of money into each paycheck, or small check each month, that 90% of the population will just take that money and spend it. They count on that behavior, that is the reason it's being done.
I'm not eligible, but I don't need to participate in that even if I was.
You need to ask yourself why the government is doing this? The government does this and many of these gimmick advanced tax payments because they are trying to trick the general public. They know that if they inject a small amount of money into each paycheck, or small check each month, that 90% of the population will just take that money and spend it. They count on that behavior, that is the reason it's being done.
I'm not eligible, but I don't need to participate in that even if I was.
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Re: Why do some people not like the advanced payments for child tax credit?
To add to this: you claimed dependent children in 2020 but you are not certain if you will qualify to claim them again in 2021. (This often happens in low-income multi-generation extended family households where dependency issues can be complicated for reasons too varied and complex to explain here, including parental incarceration/release/probation, substance use/rehab/recovery, illness, intervention by child protective services, foster placements, reassigned custody, etc.)
Last edited by dodecahedron on Tue Jun 22, 2021 11:26 am, edited 1 time in total.
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Re: Why do some people not like the advanced payments for child tax credit?
Perhaps they want a larger refund to increase their ability to purchase iBonds?
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Re: Why do some people not like the advanced payments for child tax credit?
If you typically make a payment at tax time, it could put you at risk of an underpayment penalty unless you offset it with additional withholding.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Interesting responses and perspectives.
I guess everyone handles their withholding differently. I always just make sure I am in the safe harbor (either 90% of expected tax liability or 110% of last year's tax liability). I also always prefer to pay taxes as opposed to get a refund, why am I going to give the government an interest free loan?
I guess I am pretty spoiled too, I can change my W-4 online 24/7, which I usually do after there is some kind of change to my pay check (raise, bonus, etc.).
I guess everyone handles their withholding differently. I always just make sure I am in the safe harbor (either 90% of expected tax liability or 110% of last year's tax liability). I also always prefer to pay taxes as opposed to get a refund, why am I going to give the government an interest free loan?
I guess I am pretty spoiled too, I can change my W-4 online 24/7, which I usually do after there is some kind of change to my pay check (raise, bonus, etc.).
Re: Why do some people not like the advanced payments for child tax credit?
Years ago, when I was initially training for TaxAide it was a real eye-opener on how complicated this part of the return can be. I was mildly surprised when many of the complex scenarios we trained on actually occurred, not infrequently. Single unmarried parents living together with multiple children (sometimes not all by the two of them) can get very complicated very quickly.dodecahedron wrote: ↑Tue Jun 22, 2021 11:22 am To add to this: you claimed dependent children in 2020 but you are not certain if you will qualify to claim them again in 2021. (This often happens in low-income multi-generation extended family households where dependency issues can be complicated for reasons too varied and complex to explain here, including parental incarceration/release/probation, substance use/rehab/recovery, illness, intervention by child protective services, foster placements, reassigned custody, etc.)
Stay hydrated; don't sweat the small stuff
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
So, in this case you'll be increasing your biweekly withholding to counteract the monthly checks from the IRS?anon_investor wrote: ↑Tue Jun 22, 2021 11:33 am I guess I am pretty spoiled too, I can change my W-4 online 24/7, which I usually do after there is some kind of change to my pay check (raise, bonus, etc.).
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Re: Why do some people not like the advanced payments for child tax credit?
Not so much in this case. The tax credit is increasing so that offsets most of the prepayment. Net effect on liability at the end of the year should be minor if you don't change withholdings.alfaspider wrote: ↑Tue Jun 22, 2021 11:30 am If you typically make a payment at tax time, it could put you at risk of an underpayment penalty unless you offset it with additional withholding.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
It may be worth noting that the IRS underpayment penalty for individuals is really not bad. Even if you find yourself owing a few thousand come filing time, and you're also not in a safe harbor, the penalty is only 3%. Not exactly punitive, and the couple times this happened to me I got lucky and the market had a good year, so I likely came out ahead on the loan from Uncle Sam. IMO, the majority of applicable individuals should just take the credit and not worry about it much. There's always exceptions, of course.
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Re: Why do some people not like the advanced payments for child tax credit?
For me.. if i get the advanced tax credits, i will owe taxes. I plan to do a Roth conversion to 150k MAGI. (I've decided that 22% marginal tax rates are a good deal for me to prepay, above 150k my marginal rates would be 27% for quite a while)) There is no reason to take money from one pocket and put it in the other. This whole advanced tax credits doesn't make sense for anyone who actually pays taxes, because all someone would have to do is lower their withholding and it nets out the same. Its a façade for higher income people. It only actually helps people who's monthly tax withholdings is less then the advanced tax credit.Unhandled wrote: ↑Tue Jun 22, 2021 10:52 am I see several threads over the past months griping about the the new advance payments (Jul-Dec 2021) on the Child Tax Credit. I know there are people who are going to opt out of the payments.
I'm just trying to understand a situation where advance payments are bad. I'm sure there must be scenarios in which this is the case. I guess my imagination is lacking to come up with one. Probably influenced by my situation in which the payments are welcome.
The reason I've heard several times is that people have already carefully adjusted their withholding so that their amount owed on federal tax return comes out near zero (near zero owed/refunded). But I don't understand how the advance payments would negatively affect that.
It helps me to have some numbers to work with. Here's a hypothetical scenario with round numbers to make the math easy:
Family of 2 adults, 2 children. Both kids above 6 years old.
Income is low enough that full child credit applies.
Old credit was $2000/child == $4000 credit/year.
New credit will be $3000/child == $6000 credit/year. (Total credit is now $2000 larger)
2020 (old):
Family typically owes $12,000 each year in federal income tax. They adjust withholding on paychecks to be about $1,000 per month. (12K/year)
Result= about $0 owed/refunded on tax return.
2021 (new):
Leave withholding at $1,000 per month.
1/2 of the $6000 CTC ($3000) will be paid in monthly installments during 2020.
On 2021 tax return, full $6000 CTC is claimed. Some was advance paid, but they still claim the full credit on the tax return.
Now since their total child credit is $2,000 larger, the family will expect to owe $10,000 in taxes. They have left their withholding at $12,000/year.
They get a $2,000 tax refund.
Is this the reason people don't like the change? Because the credit increased, they need to adjust their withholding to keep their tax bill/refund near zero? To me, that's just the nature of an increasing credit (or decreasing for that matter). The fact that there are advanced payments has nothing to do with tax liability. What am I not understanding?
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
- dodecahedron
- Posts: 6563
- Joined: Tue Nov 12, 2013 11:28 am
Re: Why do some people not like the advanced payments for child tax credit?
Indeed, and domestic violence (all too common in our area) adds a whole additional set of complications. There are some taxpayers legitimately entitled to claim children who may be threatened and intimidated by another taxpayer into giving up their right to claim dependents (regardless of whether or not that other taxpayer actually has any right to claim the dependents in question.) This may strike prototypical Boglehead as rare, based on postings here, but I can appreciate why folks in such a position would be very unlikely to post about such issues.jebmke wrote: ↑Tue Jun 22, 2021 11:34 amYears ago, when I was initially training for TaxAide it was a real eye-opener on how complicated this part of the return can be. I was mildly surprised when many of the complex scenarios we trained on actually occurred, not infrequently. Single unmarried parents living together with multiple children (sometimes not all by the two of them) can get very complicated very quickly.dodecahedron wrote: ↑Tue Jun 22, 2021 11:22 am To add to this: you claimed dependent children in 2020 but you are not certain if you will qualify to claim them again in 2021. (This often happens in low-income multi-generation extended family households where dependency issues can be complicated for reasons too varied and complex to explain here, including parental incarceration/release/probation, substance use/rehab/recovery, illness, intervention by child protective services, foster placements, reassigned custody, etc.)
Last edited by dodecahedron on Tue Jun 22, 2021 12:25 pm, edited 1 time in total.
- anon_investor
- Posts: 15111
- Joined: Mon Jun 03, 2019 1:43 pm
Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Nope, I got my raise/bonus in the Spring and adjusted my withholding accordingly to be covered by the safe harbor (110% of last year's liability). If the proceeding year was a monster income year (because of a big bonus) and I know the following year will not come close, I would aim to withhold 90% of the proceeding year's tax liability. 2021 will likely be the same or better than 2020, so I am withholding 110%. So at least for me, I would take the advance checks and put it into VTSAX in my taxable, which is what I do with all my leftover take home income after my bills are paid. Obviously everyone else's situation is different.BD w/ Kung-Fu Grip wrote: ↑Tue Jun 22, 2021 11:53 amSo, in this case you'll be increasing your biweekly withholding to counteract the monthly checks from the IRS?anon_investor wrote: ↑Tue Jun 22, 2021 11:33 am I guess I am pretty spoiled too, I can change my W-4 online 24/7, which I usually do after there is some kind of change to my pay check (raise, bonus, etc.).
Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
I merged Unhandled's thread into a similar discussion.
(Thanks to the member who reported the post and provided a link to this thread.)
(Thanks to the member who reported the post and provided a link to this thread.)
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
I get a submission error on the website when I try to opt out. Anyone else?
The site shows us as eligible based on our 2020 return, but I know my wife's income will increase significantly this year and push us over the income threshold, so I'm hoping to proactively opt out.
The site shows us as eligible based on our 2020 return, but I know my wife's income will increase significantly this year and push us over the income threshold, so I'm hoping to proactively opt out.
Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
The process to unenroll took me 30 minutes or so. A pain in the behind to go through ID.me. I seemed to take my driver’s license photo about 10 times. I needed to upload pictures of two more documents and go through a video call as well. I don’t want my spouse to go through the same process of unenrolling, so we will have to settle for unenrolling only half the payments.
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- Joined: Fri Apr 06, 2018 1:42 pm
Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
We are in the same boat except without the new baby. We are doing a lot better than last year so if we get anything we expect to pay it back in April. I'm going to plug anything we get into the 529s, as a forced-savings mechanism, (which isn't going to help the economy SORRY NOT SORRY ) if we have to pay it in April so be it. I just don't have it in me to do the math.as9 wrote: ↑Tue Jun 22, 2021 9:23 am We're in the phase out and it's not clear yet where our AGI will be for 2021 compared to 2020. I was going to opt out, but since we have a new baby the IRS doesn't know about yet it's probably at worst going to even out come tax time.
I definitely find it confusing though in terms of how it changes the tax situation / withholding.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
This hit the nail in the coffin for me messing around with this. why does everything have to be so difficult? why couldn't they just give everyone the same child tax credit?indyfish wrote: ↑Tue Jun 22, 2021 12:42 pm The process to unenroll took me 30 minutes or so. A pain in the behind to go through ID.me. I seemed to take my driver’s license photo about 10 times. I needed to upload pictures of two more documents and go through a video call as well. I don’t want my spouse to go through the same process of unenrolling, so we will have to settle for unenrolling only half the payments.
Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Agreed... ID.me appears to be employing some pretty low rent software developers. When it takes you to the "scan your drivers license" step it gives you the option to either upload photos from a PC or take photos with a smartphone. The PC option just redirects to the tool for a phone camera and gets stuck, likely because its not a mobile device and there is no camera to use. It never provides a "choose file to upload" popupSanAntionetta wrote: ↑Tue Jun 22, 2021 12:54 pmThis hit the nail in the coffin for me messing around with this. why does everything have to be so difficult? why couldn't they just give everyone the same child tax credit?indyfish wrote: ↑Tue Jun 22, 2021 12:42 pm The process to unenroll took me 30 minutes or so. A pain in the behind to go through ID.me. I seemed to take my driver’s license photo about 10 times. I needed to upload pictures of two more documents and go through a video call as well. I don’t want my spouse to go through the same process of unenrolling, so we will have to settle for unenrolling only half the payments.
How an entire workflow got missed in testing I have no idea. I work in software and somebody would get fired if it was a team I was leading.
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Sorry if this has already been asked, but if you are above the income limit, will you simply not get the advanced payments? Or will you get the advanced payments (if you don't opt out) then have to pay them all back when you file your 2021 income taxes?
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Its based on your 2020 AGI...so people whose income fluctuates or has risen in 2021 are the people that will be most affected.GetMeToRetirement wrote: ↑Tue Jun 22, 2021 1:04 pm Sorry if this has already been asked, but if you are above the income limit, will you simply not get the advanced payments? Or will you get the advanced payments (if you don't opt out) then have to pay them all back when you file your 2021 income taxes?
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
I appreciate the response, but my question is different. Assume your 2020 AGI was over the threshold - do you still need to opt out?
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Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
Which threshold? https://www.irs.gov/credits-deductions/ ... tax-creditGetMeToRetirement wrote: ↑Tue Jun 22, 2021 1:14 pmAssume your 2020 AGI was over the threshold - do you still need to opt out?
If you would have claimed the $2000/child credit and not the $1000-$1600 increase, it seems like half ($1000/child) would be paid out over 6 months.
Re: Opt out for Advance Child Tax Credit payments available at IRS.gov
It appears that if you received even the regular CTC in 2020, not just the additional one from the stimulus, that you are considered eligible and would need to drop out.GetMeToRetirement wrote: ↑Tue Jun 22, 2021 1:14 pm I appreciate the response, but my question is different. Assume your 2020 AGI was over the threshold - do you still need to opt out?