Offsetting Child Tax Credit (American Rescue Plan Act (ARPA) of 2021)

[Anonymous]

In general, I try to keep my tax refund / payment as close to $0.00 as possible. I prefer to maximize my paycheck opposed to getting an annual refund.

That said, I always account for the child tax credit on my W4 in anticipation of taking that credit at the time of filing.

My question, with the latest child tax credit update under the ARPA for 2021, is there any reason why I couldn't just increase my W4 deductions to $3,600 per child (under age 6) instead of $2,000 and opt-out of the monthly advance payments in the second half of 2021?

[rjs]

I don't see any reason that you couldn't do that.

The IRS has not yet published any information about how to opt out from the advance payments, but they say you are going to be able to.

[Critter-3]

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

[AmeliesUncle]

It depends on how you have your W-4 filled out.

If you have your kids listed as dependents on Step 3 of the W-4, your employer is supposed to adjust your withholding to take into account the increased credit AND for the Advance payments.  However, the IRS has not yet released the withholding tables/formulas or other guidance in that regard.  And if/when your employer (or their payroll company) implements those changes is another factor that will change things.

In other words, as of right now it is difficult to impossible to give you a good answer for how to 'break even'.   I think analyzing things in August may give you a better idea for how to do things.

[Anonymous]

@AmeliesUncle Fantastic information. Thank you for sharing.