As part of the American Rescue Plan signed into law by President Biden back in March, families across the U.S. will begin receiving the advance monthly Child Tax Credit (CTC) starting in July. And those who do NOT want to receive an advance of their credit, for any number of reasons, can now opt out.
The IRS recently released a new online portal where families can verify their eligibility, check their upcoming payments, and unenroll from the advance portions if they wish. To use the portal, you will need to have an existing IRS username or ID.me account, or you will need to enroll for one using a photo ID.
While the deadline to unenroll from the first July payment has passed, you can still opt out of the future payments that will continue through December. If you choose to do this, you will receive the entire credit as a lump sum when you file your 2021 tax return next year.
To unenroll, you MUST opt out using the online portal linked above three days before the first Thursday of the next month. And for parents who are married and filing jointly, BOTH spouses must unenroll.
As a quick recap, the credit was increased to $3,000 per child under the age of 17 and also gives an additional $600 benefit for children under the age of 6 for the 2021 tax year.
You should carefully consider your options, as the advance could have unintended consequences when you file your 2021 tax return next year. If you normally receive a small tax refund or have a balance due, then the advance payments could cause you to owe additional tax when you file next spring. In addition, if the advance exceeds the amount of eligible credit, you will have to pay back the excess on your 2021 return.
Some examples of people who may be negatively affected by this are those who switched to higher-paying jobs or went back to work after being unemployed for the majority of 2020. Also, those who sold a property or stock for a gain or had a significant increase in income may want to opt out.
The IRS released a new set of FAQs about unenrolling from the CTC advance payments. We encourage you to take a look at that for further details.
As always, we are here to make the complex simple.
Have questions? Let’s talk!