Federal payments for children may be refundable: what should parents do so that they do not have to give this money
The Extended Child Tax Credit is designed to provide financial assistance to parents to help cope with the fallout from the COVID-19 pandemic, but many may not be aware that loans do not represent free money such as quarantine payments. Some parents who have received child benefits upfront may have to get their taxes back next year if they start spending it right away. Writes about it Yahoo!.
Monthly advance payments will start on July 15th. Parents may refuse to receive them, but those who receive them are advised to check their finances before spending money.
There are several ways the IRS can ask you to get your tax return back next year. The first is if you are overpaid in child tax credits. Another is if a change in your financial situation this year will lead to an increase in your tax arrears for 2021.
“This is very important and can easily become a parental trap,” said Nate Nieri, founder of Modern Money Management.
The increased child tax credit was included in the American Rescue Plan earlier this year. Parents will receive $ 3 per year for children ages 000 to 6 and $ 17 per year for children under 3.
Eligible families will receive half of their loan in monthly installments from July to December 2021. The rest will be paid upon filing the 2021 tax return. The loan is income-based and is starting to be phased out for individuals earning more than $ 75 a year, or $ 000 for joint filing couples.
“If you don’t usually get benefits, then upfront payments could actually result in you owing more when filing your 2021 tax return,” said Ben Vacek, founder of Guide Financial Planning.
One way to avoid paying taxes is to not receive payments at all. The IRS has created an online tool to allow families to opt out of upfront payments. Parents who do this will receive the entire loan in a lump sum when filing their 2021 tax return next year if they meet all the criteria. This way they will not fall into the trap and will not have to pay taxes.
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There are other options to avoid refunds. The only thing you need to do is update information about your marital status, children, their ages and your income. The IRS has deployed two dedicated online parenting portals to communicate information about child tax credit eligibility. Updating your information will be an important step in ensuring that you don't have to refund your money.
People with low income may have another way to avoid paying off at least part of the loan. According to the Congressional Research Service, $ 2 per child will be “protected” from payment if an error occurs. For example, suppose one of your children just had a birthday that was older than the age limit, but you have already received payment. You will only need to return the amount that you received over $ 000.
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