The Advance Child Tax Credit 2021 (CTC) signed into law by President Joe Biden recently as part of the American Rescue Plan won’t put MORE money into your bank account each month if you are an income-based qualifying parent, it will just put YOUR money into your bank account…doing so earlier than usual.
Eagle Grove Accountant Mark Sampson stated he has already gotten several calls about the new plan, with several people confused, thinking this is another type of stimulus check. He cautions, it’s not.
“Unlike the stimulus checks families received during the pandemic which you didn’t have to pay back, this you will in a sort of way come tax time…and that’s huge,” said Sampson, clarifying it’s just a matter of when you want your money. You can get some now and some at tax time, or you can opt out of the CTC program and get it all with your tax return.
Come July 15, unless they opt out of the Advance CTC program, an estimated 36 million American families will start receiving a monthly check from the IRS. They will receive a check each month through December of 2021. Remember, this is not free stimulus money, it’s your money you’re already entitled to if you qualify. It all just comes down to whether you want to receive half of your child tax credit money before the end of this year, or whether you opt out of the monthly payments and take a one lump sum payment on your tax return.
One thing causing some confusion is that the Child Tax Credit has been increased from a $2,000 per child credit to $3,600 for qualifying children ages 5 and under, and $3,000 for qualifying children ages 6 – 17. Every parent meeting the requirements will get this tax credit increase, regardless of whether they get half the payments now in monthly installments or wait to claim the full amount on their tax return.
Sampson provided an example: If you have a child who is between the ages of 6 and 17, and you do not opt out of the Advance CTC program, you will receive a check for $250 each month, July – December 2021. When it comes time to file your 2021 tax return, then that advance of $1,500 ($250 x 6 months) will be deducted on your 2021 tax return and the remaining half of the eligible credit will be used against your income tax liability. He notes, if you usually receive a refund, you will receive $1,500 less than you would have if you did not participate in the Advance CTC. Sampson also cautioned that this may throw some people into actually owing the government money come tax time. It just depends on how you have your taxes set up.
“There really is no right or wrong answer here of whether to receive the advance payments or to opt out,” said Sampson. “This decision relies heavily on your comfort level, and more importantly, being informed. By being informed you can make the best decision based on your particular situation, just keep in mind the potential outcomes of your decision.”
Sampson encourages people who may have questions about what is best for them to seek the advice of a tax professional. Although a letter was sent out last week by the government announcing the Advance CTC program, he believes there are a portion of those people who did not read the letter, or read it well enough, to understand this is not EXTRA money, but rather when they will get their money they already potentially qualify for, therefore they will stay enrolled in the program, and perhaps be surprised come tax return time. If you are paid more in those six months than you were entitled to (for example an income change not noted on your last tax return which the program is based off of) the IRS will need to be repaid.
“I can’t stress enough that people need to be informed about this,” said Sampson. “It will affect your tax return in the end.”
If you want to opt out of the Advance CTC monthly refund, you can only do so online. You need to go to the IRS Child Tax Credit Update Portal at www.irs.gov/credits-deductions/child-tax-credits-update and follow the instructions. If you file a joint tax return, both you and your spouse will need to complete this process. It’s not hard, but it is a bit time consuming if you are not prepared. You will need a digital picture of both the front and the back of your driver’s license as well as taking a specific instruction-guided selfie that you must register. You will also need your social security number.
If you decide to go ahead and take that tax credit monthly payments and you do not have a direct deposit already set up with the IRS, you may also do that on the same website.
Another warning, if you receive a check in the mail/direct deposit on starting July 15, but you no longer qualify because your child is now 18 (remember, they are looking at 2019 or 2020 tax returns so they won’t consider that), you need to opt out of the program or you will owe that money back on your tax return.
While Sampson stresses this is a person-to-person decision if they want to take advantage of the Advance CTC program, he also admitted he would prefer families opt out of it because it will make their taxes much easier come filing time. If you take the money, be sure to keep proof of the money you received so it can be verified on your tax return come next year. While the government says this won’t slow down refunds next year, Sampson said he is admittedly anticipating problems and seeing slower tax returns because the government will need to verify how much money everyone received and if it matches what they claimed.
Not all families who have children 17 and younger will qualify for Advance CTC. They must also meet the following criteria:
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Single taxpayers – Earning $75,000 or less for
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Heads of household – Earning $112,500 or less
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Married couples filing a joint return and qualified widows and widowers – Earning $112,500 or less
The deadline for opting out of the Advance CTC payment of July has passed, but that doesn’t mean you can’t still get taken off the monthly payment list for future months. Here are the following unenrolling days which must be done by 11:59 p.m. Eastern time on the third day before the first Thursday of the following month.
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August 2 for the August payment
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August 30 for the September payment
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October 4 for the October payment
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November 1 for the November payment
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November 29 for the December payment
