Opt Out of Child Tax Credit

Show Notes

When is free money not so free? Maybe when it’s part of expedited child tax credit payments from the IRS. It’s all part of the American Rescue Plan passed by Congress earlier this year. Millions of American families have received these expedited payments in July and August. However, some may have to “pay the piper” for them next year at tax time.

• While the legislation is no doubt helping cash-strapped Americans still suffering from COVID shutdowns, there’s a provision that could be a problem for many families when they have to file their 2021 returns.
• As part of the law, the Child Tax Credit for 2021 was increased to get more help to more families.
• Who’s eligible for these tax credits? Married couples earning up to $150,000 a year can qualify for the full $300 monthly credit per child while single parents filing as “head of household” are eligible if they make up to $112,500 a year.
• Unfortunately, many families are likely to think that these monthly checks are like the previous stimulus payments. They’re not.These payments will be subtracted from the amount eligible families would normally receive when they file their 2021 returns. So in a sense, it’s like they’re taking out a loan from themselves that will have to be repaid at tax time.
• Worse, the IRS says that depending on income it may demand reimbursement if a family receives overpayments for the child tax credit.
• Though it is a bit of a mess, you do have a couple of options. Even though you’ve probably received payments in July and August, you can still stop the remaining payments that you’d have to refund the government next spring.
• The other option is to just continue receiving the payments but don’t spend them. Instead, put the money in an online savings account where you can earn a little bit of interest.
• Proverbs 10:4 and 5 tells us, “A slack hand causes poverty, but the hand of the diligent makes rich. He who gathers in summer is a prudent son.”

On today’s program we also answer a couple of your questions:

• What do you think about consolidation loans to help pay off credit cards?
• My banker says that I should invest some of my money, maybe about $100,000, in mutual funds. What do you think?

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