The American Rescue plan signed in March, 2021 requires the IRS to pay out one half of enhanced Child Tax Credits (CTC) to eligible taxpayers beginning this month. If you or someone you know have children, here’s what you need to know:

Current status

IRS web-sites. The IRS has created two web sites to help administer this program – one to help ensure you will get your Child Tax Credit if you are a non-filer, and another to opt out of the monthly payments. Both can be accessed on the IRS website at https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.

The monthly payments are automatic. Beginning mid-July you will begin receiving payments for one half of your projected 2021 Child Tax Credit if all of the following is true:

  • You filed a 2019 or 2020 tax return and claimed the credit or you gave information in 2020 to receive the Economic Impact Payment using the IRS non-filer tool.
  • The IRS thinks you are eligible.
  • You did not opt-out of the early payments.

Opting-out

Although most people who receive the CTC advance payments should accept and make use of them, there are some good reasons why some might want to opt of of the advance payments.

If you do not qualify for the credit. The IRS is using past tax returns to estimate who should get advance payments of this credit. Since they are using past data, they might sometimes be wrong. If your 2021 income is too high, you may need to pay back the advance payments when you file your tax return.

If you need the large credit. If you use this credit to balance out your year-end tax bill, you may find yourself owing money at the end of the year.

If your circumstances change. If your tax life changes, advance payments of the credit will complicate things. For example, if you are in the middle of a separation or divorce, the advanced payments could become a source of conflict.

Action to take

Look for notices. The IRS is sending out notices in the mail to those they think should receive the Advance Child Tax Credit payments. If you have not received one, the IRS may not think you should receive payments. But don’t worry, if you are owed the credit you will receive it when you file your tax 2021 tax return, even if you don’t receive advance payments.

Opt-out, if needed. If you do not want to receive the early Child Tax Credit payments, use the opt-out portal immediately to opt-out of the payments.

Keep track of payments. You will need to know how much you receive in advanced payments when you file your tax return next year. Do not assume the IRS is going to accurately keep track of this for you.

Tell your friends. Finally, remember that the Child Tax Credit is now a fully refundable credit. So if you know of anyone that does not pay income tax and has children, tell them. The new Child Tax Credit might help them make ends meet.

This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.