Recently, the government announced it would be sending a monthly check to qualified parents starting in July. The checks will be an advance of the Child Tax Credit. For qualifying parents with a child over 6, the amount will be $250/month. For those who qualify and have a child 6 or younger, the amount will be $300/month. The checks will continue throughout 2021.
While this provision will allow individuals and families an additional income stream, there could be some negative consequences as well. In this video, Austin Coley explains how to opt in to the payments, how to opt out, and how it could impact you.
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“It’s not a stimulus payment. The monthly check will come out of the child tax credit. So if you receive $300 a month per child, you will not receive that money in April when you file your taxes. ”
Transcript:
- Austin Coley: Alright guys, more money is going to be hitting your mailboxes soon. If you missed it, the government has announced that they will be releasing $300 per month to families who have children. Now, this is coming from the child tax credit which the government increased a couple of months ago in the latest stimulus package.
If you are under $150,000 filing joint, or $75,000 filing single, each child you have will now receive $3,000 in tax credit. It was $2,000, and it will remain $2,000 for those who phase out, but for those who qualify, it will be $3,000. If you have a child under six, it is $3,600 in child tax credit.
So the government is going to be mailing out $300 per child who qualifies based on your latest tax returns starting July 15th through the end of the year.
Now, what do we need to know about this?
First, it’s not a stimulus payment. The monthly check will come out of the child tax credit. So if you receive $300 a month per child, you will not receive that money in April when you file your taxes. So, if you have planned in the past to use some of your child tax credit to offset a portion of your income tax, the monthly check will limit your ability to do that when tax season rolls around.
To give an example, it is like if you went to your boss and said, “Hey, I need $500 to help with a bill this month. Could you give me an advance?” When payday comes around, you’re not going to receive the $500. This works the same way.
The second thing that you need to know is that if you currently qualify, and you receive a check, but when you file your 2021 taxes and wouldn’t have qualified based on the year’s income, the government is going to make you pay that money back. It’s not like the stimulus where if you got it, you keep it. That is not the same rule on this, so know that up front.
What do you need to get it? They are going to send it to you. If you don’t do anything, they will send it to you if you qualify via electronic deposit or through a check in the mail.
You can opt out of this. The IRS has a portal online where you can opt out. I don’t know if it is up yet, but it will be.
Why should you opt out?
One, if you know you are going to make more money in 2021 and not qualify for this distribution, you do not want to hold cash for the government just to pay it back on tax day. opt out so you do not have to wry about it.
Two, if you don’t need the cash to live month to month, I would highly recommend waiting until the end of the year and receiving a lump sum. You will receive a bigger refund come tax day and pay less taxes at once. If I have money sitting in my checking account and it is building, building, building, I might spend it. I’d honestly rather the government hold on to it and then pay me a big chunk at the end. That way, if I do end up making over $150,000, I’m not going to have to pay any back.
Last, whether you receive this money or not, whether you receive a lump sum or monthly payment, have a plan for that cash. Know that it is not free money. Know that it is being deposited and there may be some consequences about it.
If you have any doubt or questions on if you should receive this or not, and how it applies to your personal situation, reach out. We’re here to help. We would love to provide advice.
Thanks.
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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Austin Coley and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.