There are many families dealing with the financial impact of 2020 well into 2021. One of the ways the Biden administration is trying to help families across the country is to make early payments on available child tax credits. Is that really beneficial, or should you hold out for 2022 to get your tax return? Here are a few things to consider:
We have talked on this blog about the importance of budgeting and savings. When considering whether or not to stop the automatic payments from the government, it would be a good idea to consider what kind of saver you are. Are you good with your money and be able to invest that money over the six months to make more investing it than waiting for the lump sum next year?
Depending on your investing strategies, you could earn a lot more over this year rather than waiting until next year to start investing that money. There is no doubt if you do invest the money, investment time will be on your side to taking for sure. Just remember it is coming out of next year’s lump sum as you budget for those expenses you might have in mind.
Child & Income Situation
The advanced tax credit is based on the modified adjust gross income from 2020. If you have had considerable changes in income for 2021, you may want to opt out. If you have children that qualified for the credit in 2020 but will not in 2021, you will need to account for that also. Another contributing factor is child custody and how much time your child spends with you throughout the year. All babies born in 2021 also qualify as long as they have the proper government information.
The remaining credit will be put against what you owe in taxes. This will be helpful for your tax burden, whether you end up owing or not. Even if you do owe, you could choose to take the payment and invest it until the end of the year or beginning of next year when you pay your taxes. This would still put you financially ahead despite paying the money back.
In the end, whether or not you want to take the automatic payments will depend on your goals for the year. Are you wanting to buy a big ticket item next year and bank on that large lump sum? Maybe it would be best to stop the payments and let it all come next year. If you have goals throughout the year that would benefited by the extra money, then the payments will help you reach those goals.
Today is the first day many Americans will receive an advanced payment for their child credit. For most people it will be a benefit to take those advanced payments. It may not be advantageous through for your financial and family situation. Your children’s age and time with you, income changes, and goals are just some things to consider when choosing to opt out of this automatic payment. Be sure to check out the IRS’s page for more information and consult with a tax professional about your specific situation.
What are you planning to do with your payment advances?