One of my team, Luke, has gathered some great information that is important to those of you that received the Child Tax Credit on your 2020 tax return. If your dependent child is still under the age of 18 by 12/31/2021, you will be eligible to get an advance on your Child Tax Credits applicable to your 2021 tax return.
Our advice to our clients is to opt out of the advance of money (which could be up to $300 per month from July to December) UNLESS you need the money. Remember, this is AN ADVANCE OF YOUR MONEY, not IN ADDITION TO what you will receive on your 2021 tax return.
If you do receive one or more advance payments, we would advise you to keep any confirmation letter that you are supposed toreceive from the IRS in January of 2022. We would also advise you to keep any confirmation that you get of any stimulus payment as well (such as the $1400/person received earlier this year).
To opt out of the advance, please read the information below. If you have any questions regarding this, please let us know!
Child Tax Credit Payments in 2021
Should you take advantage of Advance Child Tax Credit payments, or should you opt out? We’ve received many questions on this topic recently, so Luke (Jennings Group team member) created this guide to help out!
The American Rescue Plan Act includes a higher Child Tax Credit amount than previous years, as well as advance monthly payments of the credit beginning on July 15, 2021. For many Americans struggling to make ends meet, these advance payments can serve as a crucial lifeline. However, if you don’t need the advance payments to get by, it might be beneficial to opt out—and you need to do so quickly.
New Advance Child Tax Credit for 2021
The Child Tax Credit 2021 gives taxpayers a credit of up to $3,600 per child for the year (compared to $2,000 in previous years). Taxpayers will also receive up to half of the credit in advance through monthly payments, unless they decide to opt out.
Advance Child Tax Credit payments will be made on the following dates:
- July 15, 2021
- August 13, 2021
- September 15, 2021
- October 15, 2021
- November 15, 2021
- December 15, 2021
How much are the Child Tax Credit payments?
Most eligible taxpayers will receive $300 per month for each child under 6 years old and $250 per month for each child aged 6-17. However, this credit is based on income and higher earners will receive reduced payment amounts.
The annual credit can be reduced to $2,000 per child if your modified AGI (adjusted gross income) in 2021 exceeds:
- $150,000 if you’re married filing jointly
- $112,500 if you’re filing as a head of household
- $75,000 if you’re single or married filing separately
The annual credit can be reduced to below $2,000 per child if your modified AGI in 2021 exceeds:
- $400,000 if you’re married filing jointly
- $200,000 for all other filing statuses
Who is eligible for the payments?
You can receive the Child Tax Credit for any qualifying children who will be younger than 18 by December 31, 2021.
The IRS will use information from your 2020 tax return to determine your eligibility for the credit, as well as your monthly advance payment amount. If the 2020 tax return is not available, they will use your 2019 return. If you haven’t filed either of those returns yet, you will need to either file them ASAP or use the Child Tax Credit Non-filer Sign-up Tool.
You can use the IRS Advance Child Tax Credit Eligibility Assistant to see whether you qualify at https://apps.irs.gov/app/ctceligible/.
- Those who are eligible for advance payments will be opted in by default and receive payments each month from July to December of 2021.
Should you opt out of advance payments?
Everyone’s individual situation is different, but to avoid unwanted surprises at tax time, it may be beneficial to opt out of the advance payments unless you absolutely need them to make ends meet. Those who opt out will be able to claim the full Child Tax Credit upon filing a 2021 tax return. Any payments you receive in advance cannot be claimed on your 2021 tax return.
Receiving these advance payments will likely complicate your tax return in 2022 and result in a lower tax refund than usual. It could even cause you to owe tax if you received advances on a Child Tax Credit that you were ultimately not entitled to.
- Those who qualify for the Child Tax Credit based on 2020 information but do not actually qualify in 2021 may have to pay back the credit in full at tax time. That could happen if you receive more income in 2021 than you did in 2020 or if your child turns 18 by January 1, 2022.
How to opt out of the Advance Child Tax Credit
You can unenroll from the Advance Child Tax Credit on the IRS website here: https://sa.www4.irs.gov/secureaccess/ui/?TYPE=33554433&REALMOID=06-0005eaac-e22a-10b8-928e-7c2b0ad00000&GUID=&SMAUTHREASON=0&METHOD=GET&SMAGENTNAME=-SM-u0ktItgVFneUJDzkQ7tjvLYXyclDooCJJ7%2bjXGjg3YC5id2x9riHE98hoVgd1BBv&TARGET=-SM-http%3a%2f%2fsa%2ewww4%2eirs%2egov%2fctc%2f.
For married couples, both spouses will need to complete the unenrollment form. Otherwise, the IRS will issue one-half of the advance for the spouse that did not unenroll.
The first opt-out deadline is June 28, 2021; there will be additional opt-out deadlines each month.
Currently, once you opt out, you cannot opt back in. The IRS is hoping to have the opt in option open in September.
In January of 2022, taxpayers should receive Letter 6419 stating the total of advance CTC payments received during 2021. When filing your 2021 tax return during the 2022 filing season, taxpayers will have to reconcile the amount they should have gotten versus the amount of advances received.