Advance Payment is Not Extra Money

The American Family Plan will start to provide a $250 per month per qualifying child (between ages 6-17) direct payment to parents starting in July.  Each child under age 6 will earn a $300 per month payment.

Several readers have told us they are looking forward to getting this payment.  However, when we tell them that this is not a extra payment but rather a reduction of how much child tax credit they will receive when they file their 2021 tax return, their enthusiasm rapidly wanes.

This payment is simply an “advance” on what you would normally get when you file your return.  You can elect not to get the advance and receive the full amount when you file your return.  Here is an example:

Jim and Trudi have four kids, two under age 6 and two between 6 and 17.  If they do nothing, the IRS will transmit a $1,100 payment to them starting in July.  During 2021, they will receive $6,600 and when they file their income tax return, they will receive the remaining $6,600 (assuming their income is not too high).  Instead, they can elect to tell the IRS not to send the payment and receive all $13,200 when they file their return.  

There is no right or wrong to either decision.  But the key is to realize this is not money but simply an advance.