Should you accept the Advance Child Tax Credit payments, or should you opt out? To help you decide, we put together a quick guide on what you need to know.
President Biden’s American Rescue Plan Act signed in March includes an increase to the existing Child Tax Credit amount. Additionally, for 2021 only, it includes advance monthly payments of the credit beginning in July 2021. For Americans facing financial hardships at home, the advance payments are intended to provide a respite from their struggles. However, it may be wise to opt out if you find the advance payments are not critical for you. And you need to do so quickly if so.
What Changed with the Child Tax Credit?
In previous years the Child Tax Credit has been up to $2,000 per child for the year. The new Child Tax Credit for 2021 gives taxpayers a potential credit up to $3,600 per child. Taxpayers will also receive half of the credit via six monthly payments on the following dates unless they opt out.
· July 15, 2021
· August 13, 2021
· September 15, 2021
· October 15, 2021
· November 15, 2021
· December 15, 2021
Who is eligible for the payments?
If you have any qualifying children who will be under the age of 18 on January 1, 2022, you are eligible to receive the payments. The IRS is referencing information from your most recent tax return filed (2020 in most cases) to determine your eligibility for the credit. If you are eligible based on this information you will be opted in by default and will automatically receive monthly payments by check or direct deposit between July and December 2021.
How much are the advance payments?
It depends on the number of children you have, their ages, and your household income. Many eligible taxpayers will receive $300 per month for each child under the age of 6 and $250 per month for each child between the ages of 6-17. High income earners will start to see their payments reduced as follows:
The annual credit may be reduced to $2,000 per child if your modified AGI (adjusted gross income) in 2021 exceeds:
$150,000 if married filing jointly
$112,500 if head of household
$75,000 if single or married filing separately
The annual credit may be reduced below $2,000 per child if your modified AGI in 2021 exceeds:
$400,000 if married filing jointly
$200,000 for all other filing statuses
Should you opt out of the payments?
Ultimately it depends on your 2021 income, and everyone’s circumstances are different. If you want to play it safe and avoid any unnecessary surprises at tax time, you might consider opting out of the advance payments unless you need them to make ends meet at home.
Those who opt out can claim the full Child Tax Credit upon filing their 2021 tax return next season. Any advance payments that are received during July - December 2021 cannot be claimed on your 2021 tax return. Thus, receiving the advance payments could complicate your 2021 tax return and may result in a “lower-than-usual” refund. In some cases, it could result in a tax balance due instead of a refund.
If you are expecting an increase in income for 2021 compared to 2020, or if your child is turning 18 in 2021, then it may be wise to opt out as a precaution.
How do I opt out of the Advance Child Tax Credit?
Opting out is a one-time process. You cannot opt back in currently. To unenroll from the Advance Child Tax Credit, go directly to the IRS website here. NOTE: If you are married and file as Married Filing Jointly, each spouse must complete the unenrollment process online.