Payments from the expansion of the child tax credit began on July 15th. Instead of waiting until tax time to receive this benefit as a lump sum, qualifying parents will now receive half of the credit in monthly payments. The remaining half will be factored into their tax liability when filing 2021 tax returns, just like it has been in previous years. The credit is income-based. Eligible households can receive up to $300 per month for a child under age six, and up to $250 for children ages six to seventeen, through the end of the year. Per the IRS, approximately 39 million US households are eligible for this credit. Divorced parents will need to consider how this affects their child support or alimony agreements, as the advance payments will be made to the parent who claimed the child on their 2020 tax return. There may be reasons to opt out of these monthly payments and instead wait to claim the credit when filing 2021 tax returns. Families who typically owe money to the IRS when they file taxes, prefer to receive the credit as a lump sum, or expect an increase in income from their last tax return might want to opt out of monthly payments. If you or someone you know wants to opt out of these monthly installments, the IRS has an online portal for this purpose. If you are unsure where you fall, we recommend you consult with a tax professional for a more personalized review of your situation.
Any opinions are those of Kathryn Beach and not necessarily those of RJFS or Raymond James. Expressions of opinions are as of this date and are subject to change without notice.