I always break even at tax time. I know I will end up paying the IRS with this new Child Tax Credit advance. How can I determine how much I need to adjust my withholdings so I don't end up owing when I file taxes next year? The IRS tool doesn't factor in the new amounts for the new bill, it is still calculating $2k per each child.
You have several options here:
1. Go to the IRS portal and stop the advance payments.
2. Make estimated payments on the IRS payment page to balance the effect of the advances.
3. Adjust your withholding to balance the effect of the advances.
Any of these can be done in an amount appropriate to get you back to a balanced position.
Thank you so much for your response Nick-K-EA. I don't want to stop the advance payment. I just want to adjust my withholdings. I understand I can adjust withholding to balance my return, I just need to find out how much to adjust it. That is the part I am not able to get any information on. The IRS tool that allows you to estimate what you need to withhold does not take into account the new higher child tax credit. Do you have any information on how I can determine how much to adjust my withholdings?
The child tax credit amount hasn't changed, they are just paying you some of it now instead of with your refund next year. If you want to adjust your withholdings to fix your situation, the adjustment will need to add up to however much you will receive in advance payments. You can use the "extra withholding" section in step 4 of the W-4 to specify the exact amount of additional withholding you want. Please note that this amount is per pay period, so you'll need to divide the total amount over the number of remaining pay periods in the year.
The IRS states that "the credit amount has been increased from $2,000 to $3,600 for children under age 6 and to $3,000 for children ages 6 to 17." Am I not understanding that correctly? So I have 3 children whom I received $6k total for on previous tax returns but now this year I am receiving $4,800 up front in payment and will receive $4,800 when I file in 2021. So my concern is I will end up owing because of this and I need to increase my withholding but I don't know how much...
Let me rephrase my previous statement: The advance payments do not change the amount of the credit, they just shift some of the payment of the credit from your refund check to monthly checks. The checks aren't going to add up to more than your credit. But if you are counting on your full credit to get you from owing to getting a refund, then the advances are going to prevent that from happening.
Yes, I agree and understand. As I explained earlier...I just need help on how to determine how MUCH to increase my withholdings. I know it will end up being a bit less at filing time bc we are receiving half now in the form of payment. Basically we are going to get about $1200 less on the child tax credit when we file because we normally got $6k and now we will get half of the credit ($4,800) at tax time bc the other $4,800 is in the checks. How can I determine how much to withhold from my check and my husbands check per month so that we will still break even?