PSA (Public Service Announcement): Child Tax Credit

I have received some questioning looks from businesspeople over last week’s PSA about the “Advance Child Tax Credit.” Take the money now or wait until tax time to claim the credit?

Many adults are familiar with Aesop’s Fables. I am thinking of The Ant and the Grasshopper. Check it out here: AesopFables.com - The Ant and the Grasshopper - General Fable collection

Buck and Doe have three (human) children.

Their ages are 7, 11, and 14.

They are taking the “Advanced Payments” for 2021 which started in July and runs Through December 2021.

They will receive a tax credit, in total of $3,000 for each child (6 to 17 years old as of Dec 31, 2021).

The “Advanced” PAYMENTS, taken this year(2021), are $1,500 per child for a total of $4,500.

When they file their taxes for next April 15th, they will receive the balance of $1,500 per child as a CREDIT on their tax return.

They have received a tax refund of $1,000 each year for the last 5-years. They look forward to the refund, which they use for a yearly family reunion in Jackson Hole, Wyoming.

On April 15th, they will be in for a BIG surprise!

Instead of a refund, because they took the “Advanced” payments, they will owe:

$500 per child.

Decision Time

It is possible that Buck and Doe may owe taxes because they decided to take the Child Tax Credit now.

There taxable income has not changed.

In past year’s they received a Child Tax Credit of $2,000 for each child.

In 2021, even though they got a bigger total credit per child, the amount they are claiming on their tax return is $1,500 (3,000/2 = 1,500)…instead of $2,000…

THEIR REFUND IS $500 SMALLER PER CHILD!

The first two children just wiped out their vacation money (2 X 500 = 1,000) and the third child means they must pay $500.

Conclusion

Take half the credit this year or all the credit on your tax return. Now you are alert to the potential consequences of accepting those “Advance” deposits this year.

You may have a different strategy: Take the Non-Taxed Credit entirely on your tax return and you have an extra $1,000 per child. For three-children, 3 X $1,000 = $3,000 EXTRA!!!

Are you the Ant or the Grasshopper?

There is a website with a “Advanced Payment of the 2021 Child Tax Credit at

https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

There are several tax calculators, with an internet search: “ADVANCED CHILD TAX CREDIT CALCULATOR”

Here is one that is easy to use: Child Tax Credit 2021 Calculator 2021. Advanced Payment. (efile.com)