IRS Child Tax Credit

[Scallywag]

I'm confused about how this works and what this entails in terms of taxes in general. As I understand, this is a monthly payment made to income-qualified low and moderate income families (as defined by our 2020 tax returns or eligibility claims) with "qualifying" children from July 15 through Dec 15, 2021.

And I further understand that the powers-that-be hope to extend this "indefinitely"? I get that "hope" does not mean "most definitely" but where will the money to fund these "indefinite" monthly paychecks come from? Does this mean that personal income taxes will go up? Someone needs to pay for these checks to go out, right? Or does the Fed intend to print greenbacks ad nauseum?

Also, is there a way to "opt out" of this credit in exchange for paying less overall payroll taxes? Or is that a profoundly stupid question?

[ua_guy]

The existing annual tax credit of $2k has been upped to $3k. The monthly payment is actually an advance on that existing credit, but not the full amount. The increased amount and stipulations expire in 2022 without additional legislation or approval.

I suppose if you really don't want the tax credit, you could sell your children.

https://www.investopedia.com/terms/c/childtaxcredit.asp

[Jluke]

You can opt out but they didn’t make it easy.

first payment is scheduled for July 15.

[MonkeyMama]

You can opt out of getting the advance payments. & yes, they made it crazy difficult. If MFJ, both you and your spouse will have to opt out. They also had us both go through identity verification.

https://www.irs.gov/credits-deductions/child-tax-credit-update-portal

[Scallywag]

You can opt out but they didn’t make it easy.

first payment is scheduled for July 15.

I want to opt as we might owe taxes and can use the credit to pay for some or the taxes owed when we file.

You can opt out of getting the advance payments. & yes, they made it crazy difficult. If MFJ, both you and your spouse will have to opt out. They also had us both go through identity verification.

https://www.irs.gov/credits-deductio...-update-portal

Thanks. I wonder why they would insist we take the credit if we didn't want to, for any reason? A better way to help folks like me would be to reduce our income tax burden that eats up a large portion of our paycheck (esp here in California).

[ua_guy]

Thanks. I wonder why they would insist we take the credit if we didn't want to, for any reason? A better way to help folks like me would be to reduce our income tax burden that eats up a large portion of our paycheck (esp here in California).

It's not that they're insisting it. Making it "opt out" reduces the administrative burden on both sides. Families constrained for time and money don't have to apply to get it and the government doesn't have to set up a formal system to respond to those applications. Most people who are eligible do take the credit- the government is providing it as an advance rather than a rebate at tax time. It wouldn't be that onerous to just sock it away in an account until tax time if you don't need the advance.

You might think that's messed up, but it's the government trying to do something efficiently and it cost taxpayers less in administrative burden this way.

[Scallywag]

It's not that they're insisting it. Making it "opt out" reduces the administrative burden on both sides. Families constrained for time and money don't have to apply to get it and the government doesn't have to set up a formal system to respond to those applications. Most people who are eligible do take the credit- the government is providing it as an advance rather than a rebate at tax time. It wouldn't be that onerous to just sock it away in an account until tax time if you don't need the advance.

You might think that's messed up, but it's the government trying to do something efficiently and it cost taxpayers less in administrative burden this way.

They sure make it onerous to "opt out".

No, it's not a big deal to simply stick that money into an a/c if we didn't want it, but we may owe an underpayment penalty that we were hoping we could avoid or reduce by opting out of this child tax credit "advances" during to year.

We cannot pay more taxes during the year to avoid the underpayment penalty because it affects our cash flow and we struggle during the year. My husband did increase his tax rate for the next paycheck so that these installments from Uncle Sam go right back to the govt.

I legit wish the govt would do something about income tax levels for families like ours than pull stunts like this (child tax credit). I am sure we're in minority because many of my neighbors and friends are happy to get these advances.

And I believe that "they" have plans to permanently provide these credits - wouldn't it be a better idea to just cut income tax rates for families with children, at least?

[ua_guy]

They sure make it onerous to "opt out".

No, it's not a big deal to simply stick that money into an a/c if we didn't want it, but we may owe an underpayment penalty that we were hoping we could avoid or reduce by opting out of this child tax credit "advances" during to year.

We cannot pay more taxes during the year to avoid the underpayment penalty because it affects our cash flow and we struggle during the year. My husband did increase his tax rate for the next paycheck so that these installments from Uncle Sam go right back to the govt.

I legit wish the govt would do something about income tax levels for families like ours than pull stunts like this (child tax credit). I am sure we're in minority because many of my neighbors and friends are happy to get these advances.

And I believe that "they" have plans to permanently provide these credits - wouldn't it be a better idea to just cut income tax rates for families with children, at least?

I don't disagree there...I'm sure it's a pain. I was just pointing out the majority of people would need to "opt in" if they went with an alternative model of distributing the payments and that would be a lot of administrative burden.

There are great reasons why the administration is getting behind this. You are right, it may not work for everyone, your situation being an example. Tax code is ridiculously complex, I don't think the current structure works very well, and hasn't for a long time. I'm still very bitter about SALT deductions cancelled as part of the last administration. I never understood the child tax credit thing in the first place, it's been around for a long time. Perhaps back in the day it was incentive/break for people to have more children. Now I think there's too many mouths to feed across the globe, but that's just my personal opinion.

[Jluke]

Government figures the money will burn a hole in people’s pockets and they’ll spend it rather than save.

hopefully come tax time the spenders don’t end up owing money

[Scallywag]

Government figures the money will burn a hole in people’s pockets and they’ll spend it rather than save.

hopefully come tax time the spenders don’t end up owing money

I would hope that the government would not want people to spend the money on luxuries but on necessities. Frankly, the people getting this cash advance on their child tax credits are likely those who actually need it. That includes my family. So far, the folks in my area that are getting these cash advances are the single mom with 4 kids or the laid off couple who are behind on rent etc. Many are planning to apply the cash advances to groceries or to back rent. I don't know of anyone who is going to blow the money on "vacations" or "trips".

It's also not that I don't want this extra money - it's just that I don't want it NOW because California taxes are SO ridiculously high (in combination with the VHCOL in my neck of woods) that we have to survive by owing on taxes (and "penalties") come April of each year. and I would have appreciated the option to opt out easily..

I also really hope that something is done about these taxes that squeeze us each month especially those of us living in VHCOL areas.

[Scallywag]

https://www.wsj.com/articles/child-tax-credit-payments-11626294557

[Jluke]

Oddly enough we received a paper check for this today.

The previous stimulus payments were through direct deposit.

[Scallywag]

Oddly enough we received a paper check for this today.

The previous stimulus payments were through direct deposit.

Weird. We got it direct deposited, even though we did not income qualify for the third large stimulus check because we converted an old 401K into a ROTH IRA in 2020. UGH.

Are you going to take these checks now or do you plan to "opt out"?

[Jluke]

Weird. We got it direct deposited, even though we did not income qualify for the third large stimulus check because we converted an old 401K into a ROTH IRA in 2020. UGH.

Are you going to take these checks now or do you plan to "opt out"?

I saw on bogleheads that you can go to an IRS page and change from paper checks to direct deposit for the child credit.

I’m fine with the paper checks. Setting the money aside in my sinking fund account and tracking those deposits separately. Not sure what to do, though life is getting more expensive quickly as it seems prices are going up for most everything.

[Petunia 100]

I'm confused about how this works and what this entails in terms of taxes in general. As I understand, this is a monthly payment made to income-qualified low and moderate income families (as defined by our 2020 tax returns or eligibility claims) with "qualifying" children from July 15 through Dec 15, 2021.

And I further understand that the powers-that-be hope to extend this "indefinitely"? I get that "hope" does not mean "most definitely" but where will the money to fund these "indefinite" monthly paychecks come from? Does this mean that personal income taxes will go up? Someone needs to pay for these checks to go out, right? Or does the Fed intend to print greenbacks ad nauseum?

Also, is there a way to "opt out" of this credit in exchange for paying less overall payroll taxes? Or is that a profoundly stupid question?

It's funded the same way that all income tax credits and deductions are funded. The tax revenue is still needed so the tax liability is shifted to someone else.