As part of the American Rescue Plan, signed by President Joe Biden this spring, families may now be eligible to receive Advanced Child Tax Credit Payments in 2021. What you need to know is that these “credits” are an advance of the credits that you would file in your 2021 return. (In other words, part of the refund you would be getting in 2022.)
According to the IRS website, “eligible parties can be beginning receiving payments for half of the credit as early as July 15. The other half is claimed when you file your 2021 return. Additionally, the part that you will receive early will be broken down into monthly installments for the remainder of the year.”
The letter that went out to qualifying families from the Whitehouse earlier this year explains, “For 2021, most families with kids will get a tax relief payment of up to $3,000 for each child between 6 and 17 years old and up to $3, 600 for every child under 6 years old.”
Receiving the payment:
Most families were automatically enrolled in the early payment plan to aid working families with children that can use the money now. If you want to receive the payment and you filed your taxes in 2019 and 2020, you should not need to take any action. If you utilize direct deposit for your refund, you will receive credits the same way.
Should you opt-out?
Many families are “opting out” and choosing not to receive the payments early, for a variety of reasons.
Some families simply do not need the money and prefer to wait until their regular filing. But these payments were sent to low-earning families that met income limits. If your employment status changes this year and your earnings exceed that limit, but you received payments, you could end up owing some of that money back.
Your dependent status also plays a role in this decision. All eligible dependents must be under the age of 18 by the end of this year. Some families also choose to alternate who claims dependents on returns each year, which could again mean that some recipients will owe money back or not be eligible at the tax filing if someone else already received that benefit.
Not to mention that the IRS is pushing this change out quickly. Errors and overpayments can happen. There are also a variety of unique situations that can impact a family’s employment, residency, and dependent status. It is best to talk to a Certified Public Accountant (CPA) or tax professional if you have questions.
The IRS portal
In addition to opting out, the IRS Portal allows you to update your information, manage the payments, and review frequently asked questions or other forms and instructions that may impact filing. You may also add new dependents and update babies born in 2021 through the portal or apply for the credit if you are typically not required to file through the Non-filers Sign-Up Tool.
Curious how much you are getting? Try our calculator.