Skip to main content

Watch our latest video: "3Q2023 Market Review and Outlook for 2023"

Baby 2717347 1920 KTS

Parent PSA: New Child Tax Credit Payments Could Negatively Impact Your 2021 Tax Bill

Photo of author, Kameron Smith, CFP®.
Kameron Smith, CFP®
Financial Strategist

My wife and I have two children and on July 15th we just received our first monthly child tax credit payment as part of the Fed's new American Rescue Plan. Receiving money from the fed...sounds like a win-win, right? Not so fast. Here's why we will be opting out of this tax credit as soon as possible, and choosing to receive full payment when we file our 2021 tax return next spring.

As mentioned, the new monthly child tax credit program was created in March 2020 with the American Rescue Plan federal legislation. These payments are based on certain qualifications (i.e. income and number of eligible children). Families can expect to receive up to $300 per month per child under the age of 6 and up to $250 per month for children ages 6 to 17 years old.

Of course, everyone's financial situation is different. However, if you are someone who usually owes money at tax filing time, or are right at that break-even point, you need to know that your tax return for 2021 will look significantly different if you continue to receive these monthly child tax credit payments. In our case, we try to keep our tax bill right at a break-even each year. But, with the monthly child tax credit payments coming for the rest of 2021, we know we will have a significant bill due at tax filing next year if we do not turn off these payments. Here's why...


My wife and I are receiving two payments for our two children of $300, which equals $600/mo in advance payments. This monthly payment will last from July – December for a total of six months. After six payments, we will have received $3,600 in advanced child tax credits. If you are at a break-even point on your federal tax return, where you typically owe no money at tax filing time, then due to these monthly payments, you will likely have a tax bill due at tax filing time of $3,600. If you are not proactive in saving for this bill, this is a substantial amount of money to try to come up with all at once.

If this sounds even remotely like your situation, you too should consider opting out of the payments right now. Remember, you will still receive the child tax credit — it will just come at tax filing time next year. Below is a link to opt-out or unenroll should that make sense for your situation.

Please note that if your most recently filed tax return was a joint tax return, your spouse will also need to unenroll, if appropriate. Unenrolling is an individual action. If your spouse does not unenroll, he/she will receive payments for their portion of the advance Child Tax Credit.

On the other hand, if you normally receive a significant tax return every year, you may not encounter any negative tax ramifications from receiving the monthly tax credits now versus later. But I would still recommend becoming more familiar with this change and how it affects you directly. Consult with your McKinley Carter financial advisor or a tax expert for more information.


Related Insights
I Stock 174879501 IRS USE

IRS Interest in Interest Income Ignited

Interest rates (and interest income) are significantly higher than we've seen in many years. And many taxpayers may be surprised when they see their next tax bill due from interest income earned in their taxable accounts—whether from their investment portfolio, or their bank or credit union. Be prepared.

Read More
JAE Savvy Blog Image copy USE

How Women Can Benefit from SECURE 2.0

It is no secret that the financial odds are stacked against women. Whether caused by life circumstances outside of their control, unfair perceptions, or chosen priorities, women, on average, have more financial stress to overcome than men. Stress of any kind can take its toll on your health and well-being.

SECURE Act 2.0 continues a push in legislation to address some of the financial stress points that women face. Learn which new potential stress-reducer might benefit you?

Read More
Lemonade 3571083 1920 JAE blog

Making Lemonade from Lemons: How to Get Ahead with Capital Losses

We all invest money for one primary reason—to make money. No doubt, your financial plan outcome hinges on achieving some amount of return on your money you’ve accumulated. While the whole point of investing is to get a positive return on those resources over your holding period, your success does not rise nor fall on the consistency of price increases. Well-formed financial plans consider not only reasonably anticipated rates of return but also the variability of outcomes. In short, your financial plan should not experience shock from short-term fluctuations in the markets. Learn how to get ahead with capital losses.

Read More