This month, families across metro Detroit will receive the first installment of the Child Tax Credit. The payments begin July 15.
The payment – up to $300 per child – can be a big relief for parents. The money can be used for anything, clothes, childcare, food and more. It can also be tucked away to pay for college. The money seems like a godsend, but not everyone wants the money and some people who take the money could be on the hook next year.
Under the new law, children 5 and under are eligible for up to $3,600 a year in credit, and children 6-17 are eligible for $3,000 a year.
The credit is based on your annual earnings and starts to phase out for individuals earning more than $75,000 a year or $150,000 for those married filing jointly. But the monthly payments are an advance on the credit you’ll file in April 2022.
That can be a problem, according to John McCulloch, the program director for accounting and taxation at Madonna University.
”Because they’re advancing this credit, if for whatever reason you do not qualify or the credit is diminished because of your income level, you may have to pay it back,” he said.
That’s right. if you no longer qualify for the advanced credit, you’ll have to give Uncle Sam back his money.
”That could be a nasty surprise for some families,” he added.
McCulloch says if your income increases, you could qualify for less money or no money at all. Or, your 17-year-old has a birthday and ages out, you no longer qualify. Divorce or shared custody can also make filings messy too. If you’re advanced more than you’re owed, it’s important to pay that cash by tax day or you’ll owe even more.
”Late payment penalties as well as interest. And I always tell people the government’s the worst source to be borrowing money,” he said.
The IRS website has an opt-out option on their website. If you have an IRS account, it’s pretty straightforward. If not you’ll have to create a new account with ID.ME. The IRS calls them a trusted technology partner. ID.ME is a digital identity protection company and the IRS says they’ll make sure you are really you. So don’t be alarmed when you’re directed to a site that looks like this.
There will be parents signing up to opt out even though they’re not expecting a life change to affect their eligibility for the child tax credit. For some, it’s better to be safe than sorry.
It’s too late to opt out of the July 15 payment, but you can still opt out of future advances.
When you opt out, both parents have to opt out separately. The whole process is driven by Social Security Numbers. So, if one parent opts out but the other parent is still enrolled, that money is still coming in and you could still be on the hook for paying it back
Additional Coronavirus information and resources:
View a global coronavirus tracker with data from Johns Hopkins University.
See complete coverage on our Coronavirus Continuing Coverage page.
Visit our The Rebound Detroit, a place where we are working to help people impacted financially from the coronavirus. We have all the information on everything available to help you through this crisis and how to access it.