![]() If you fall into those categories or you can afford not to use the credit payments immediately, you may want to opt out, via an IRS portal that will be available soon, or at the very least, save half of each payment until you file your 2021 return. ![]() If you switched to a higher-paying job, for instance, or your spouse went back to work after being unemployed for most or all of 2020, you could be in a higher tax bracket next year, which could change your tax math, said Matthew Saneholtz, a Florida-based CFP with Tobias Financial Advisors.Īlso, if you sold property for a gain and therefore earned more income in 2021, you could possibly have to pay the credit back when you file your 2021 tax return because you owe more taxes than the credit is worth, Saneholtz said. There are many families who could be affected by this. Who may need to be careful before spending "For this reason, if you usually owe when you file your taxes or cut it close, you might want to consider opting out of the advance payments or setting a portion of them aside to cover your tax bill in April," he said. Everything else being equal, they will owe $500 more in 2021 than they did in 2020, Wacek explained. When that same family files their taxes next spring, there will only be $1,500 left of the child tax credit to lower their tax bill. In 2021, the credit will be $3,000 for the same child, but half of it will be paid out in advance. "If you don't usually receive a refund, then the advance payments could actually cause you to owe more when you file your 2021 taxes," he said.įor a 10-year-old child, the credit was worth $2,000 in 2020, which lowered a family's tax bill by that amount when they filed their return, Wacek explained. It's important to understand that with these payments, the IRS is essentially prepaying a tax credit that you usually receive when you file your taxes, said Ben Wacek, a Minnesota-based CFP and founder of Guide Financial Planning.
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