Opting Out Of The Advanced Child Credit

As you may or not be aware, The American Rescue Plan, signed into law on March 11, 2021, expanded the Child Tax Credit for 2021 in order to get more help to more families.  The Plan increased the Child Tax Credit from $2,000 per child to $3,000 per child for children over the age of six and from $2,000 to $3,600 for children under the age of six, and raised the age limit from 16 to 17. This payment amounts to $3,000 annually per child aged 6 -17, and an additional $600 (or $3,600 total) for children under the age of 6. The credit is income based for those earning less than $75,000 per year for an individual or less than $150,000 for those filing jointly. These payments are scheduled to begin on July 15th, 2021.

Part of this plan includes a portion of each payment up front in the form of monthly payments. These payments may be up to $250 for each school-aged child, and up to $300 for those children under age 6. The remainder of the credit will be paid upon individuals filing their 2021 taxes.

There is now a new procedure in place that can change parts of this credit if one’s financial situation deems it necessary. The IRS is allowing taxpayers to instead choose to opt-out of receiving the monthly payments in advance. As previously mentioned, this may or may not be necessary depending on a client’s situation. It is important to take a close look at this in order to properly advise clients which steps they should take.

As it stands, the IRS will be looking at both the client’s tax return from the prior year, as well as the number of children for whom the credit was claimed during the prior year. However, as the bill was signed into law this year, there will be differences in how this will work for 2021’s tax returns. 

Instead of the IRS being able to use the previous year to make these calculations, the onus will instead be placed on individuals to reconcile the payments they receive in 2021 and the amount they should have actually received. Payments that amount to more than the client should have received, will need to be repaid.

For that reason, it may be advisable to clients to opt-out of receiving these advanced payments if their income for 2021 is expected to be higher than it was for 2020. Any other circumstances which may also have an impact on a client’s eligibility for the credit should also be taken into account when making the decision to opt-out of the credit.

The IRS’ new tool is located on their portal. Clients only need to choose “unenroll from advance payments”. The portal can be found here:

https://www.irs.gov/credits-deductions/child-tax-credit-update-portal

Source: https://www.mocpe.com/advanced-child-credit-opt-out/