DENVER — More than half a million Coloradans woke up Thursday morning with extra money in their bank account or extra money on the way. It is the first of six monthly child tax credit payments from the IRS.
Democrats passed this change as part of the stimulus package earlier this year. Parents making less than $150,000 get $250 per month for children 6 to 17 and $300 for children under six.
"For a lot of families, it’s very daunting. For us, it’s been tough to manage, but we’re getting through it," said Trevor Rudolph, a father.
The passage of the American Rescue plan in March means hundreds of dollars will be heading to parents' bank accounts.
The money comes at a time when food prices are up 2.5% compared to last year, and gas prices are up almost 50%.
"People got a lot of money all at one time, and the economy wasn't ready to make everything that people wanted. And so you've seen prices go up," said Jason Furman, an economics professor for Harvard University.
A family of four with two teenagers making the Denver median income of $100,000 will see next year's refund go down by about $1,000 compared to 2020. That's if they choose to receive the monthly payments, and assuming their situation doesn't change.
Option to opt out
Families can also choose to opt out of receiving the monthly payments. If they opt out, next year's tax refund will be about $2,000 more than 2020. This is because the American Rescue package also increased the size of the tax credit, which used to be $2,000. Now, it's almost double that.
Families who do not owe any taxes each year don't need to worry about opting out. They will receive payments for each child, and if they file taxes next year, they'll receive more money back than they did in 2020. In most cases, it adds up to $100 for each child between 6 and 17 or $400 for a child under 6.
If that family who doesn't pay taxes chooses to opt out of the monthly payment, they'd get the full amount of the credit back in next year's refund. That's worth up to $3,600 dollars.
But the monthly payments aren't for everyone.
Tax expert Carlos Castro with Smart Tax and Accounting Inc. suggested people who make significantly more than the credit thresholds to consider opting out.
“You would not be eligible for that advance, and therefore you would, A: have to pay it back, or B: your refund would be reduced accordingly,” Castro said.
People planning to opt out should be prepared to verify their identity with the IRS through a third-party company called ID.me.
"The process was extensive," said Drew Robertson, who opted out of the child tax credit.
But that's a good thing, according to cybersecurity expert Mark Ostrowski. He said the IRS is "going through great lengths to be sure that your information is secured."
"As you compare that to your social media accounts where you are offering up pictures and information, in some ways, that can be more worrisome than uploading it in a secure process with this robust authentication," Ostrowski said.
While it is a bit of a process, experts say it's better than cutting a payback check at tax time.