Question

Accept or defer dependent payments?

Forum|Forum|4 years ago
July 21, 2021
1 reply
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I had a lower than average (income-wise) year in 2020 and am eligible for dependent payments and have received my first. I expect to have a much better, higher than average 2021 and 2022. Should I defer those payments or take any other action to minimize tax liability, all other things being equal?

KochuK

Hi TaxConsumer2021, thank you for joining the "Ask the Experts: New Dependent" special forum today.

Congratulations on a better financial picture for tax year 2021 and 2022.

The Advance child tax credit payments are just an estimate advanced payment, and it is a preference of receiving payments now during 2021 or claim full credit, if applicable, in your tax year 2021 filing.

Q F2. My income for 2021 will be significantly different from the income shown on my 2020 tax return that I filed. Will the IRS update my advance Child Tax Credit payment amounts to take that change into account? (updated June 24, 2021)

Yes, if you provide your updated income by using the Child Tax Credit Update Portal (CTC UP). Later in 2021, this online portal will allow you to update income you plan to report on your 2021 tax return so that we can change our estimate of your 2021 Child Tax Credit. This will allow us to change the amount of your monthly advance Child Tax Credit payments. More details will be provided regarding CTC UP through these questions and answers.

https://www.irs.gov/credits-deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-topic-f-updating-your-child-tax-credit-information-during-2021

If you receive payments now, you will have less credit available to offset your higher income tax liability at time tax. You can "unenroll" using the Child Tax Credit Update Portal now.

We need more information to recommend how to reduce tax liability. In general, if you are an employee, max out the company provided pre-tax benefits, such as 401K contribution, FSA, HSA, dependent care benefits. If you are self employed, please consider capturing all directly related business expenses, contribute to a self-employed SEP, Simple, and qualified plans to reduce net self employment income.

Hope this helps.

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