Advance Child Tax Credit Update & Why You May Want to Opt Out

The IRS has started sending letters to over 36 million families who, based on tax returns filed, became eligible to receive monthly child tax credit payments starting July 15. Eligibility is evaluated based the information you provided in your 2019 or 2020 tax returns, or through the Non-Filers tool while registering for an Economic Impact Payment. If you are eligible for advance child tax credit payments, you will receive (or may already have received) a second, personalized letter listing an estimate of your monthly payment, starting July 15.

The IRS further announced that eligible families will begin receiving advance payments, either by direct deposit or check. Importantly, this payment will be up to $300 per month for each qualifying child under six years of age, and up to $250 per month, for each qualifying child from ages six to 17. Moreover, advance child tax credit payments will be issued on July 15, August 13, September 15, October 15, November 15 and December 15, 2021.

To avail themselves of these credits, taxpayers who have not yet filed their 2020 or 2019 return should do so as soon as possible, to receive advance payments. The IRS reminded taxpayers who do not normally file returns, such as families experiencing homelessness, that filing soon will ensure that their most current banking information would be applicable. Similarly, community groups, non-profits, associations, education organizations and others with connections to people with children to share this critical information about the child tax credit and other important benefits.

Finally, the IRS reminded taxpayers of the changes to child tax credit by the American Rescue Plan Act (ARP) ( P.L. 117-2). The entire credit is fully refundable for 2021; meaning eligible families can avail themselves of the credit, even if they owe no federal income tax. The IRS also recommends that taxpayers visit the Advance Child Tax Credit Payments in 2021 page to learn more about these changes.

You May Want to Opt Out

Just because you qualify for the credit doesn’t mean you “should” take it. If you expect to make more money in 2021 than you did in 2020, are facing a complicated child custody situation or simply want to reduce your 2021 taxes or increase your refund, you may want to opt out. Keep in mind, this is an “advance” on what you can claim on your 2021 taxes, not a non-refundable loan like the PPP was. If you opt out, you are not declining the credit, you are simply deferring when you receive the extra cash until next year rather than in monthly installments from July – December 2021.

You can still decide to opt out of your remaining 2020 payments even if you have already received your July payment. To unenroll, you must do so before the IRS’ deadline of the first Thursday of the month to not receive the next month’s payments, or August 2 for the August 13 payment. Here’s what you need to do to unenroll:

  1. Visit the Child Tax Credit Update Portal and click on Manage Advance Payments button.
  2. Sign in using your IRS or account. If you don’t have either of these, you can create one on this site with an email address, a photo ID, your Social Security number and a smartphone or tablet to verify your identity.
  3.  Once you sign in, you can see your eligibility and unenroll from future monthly payments.

NOTE: Unenrolling only applies to you, so if you are married and file jointly, both you and your spouse will need to opt out otherwise you’ll get half of the joint payment. 

For more information on the Child Tax Credits, you can read our earlier blog post here. Or if you have questions, reach out to us and we can help you make the right decision for your specific tax situation.

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