By: Irina Moyseyenko, CPA, MT
The IRS finally released the much-anticipated child tax portals and will start making advance payments to those who qualify. As you may recall from our previous blog, the American Rescue Plan Act introduced an enhanced child tax credit and directed the IRS to pay half of the original or enhanced child tax credit in advance for those who qualify. The IRS has been working hard to implement these changes and recently released tools to help with receiving the credit.
Child Tax Credit Eligibility Assistant
The first of the portals allows you to check whether you qualify to receive advance payments. The eligibility is based on your 2020 tax return or 2019 if you have not filed 2020. If you are unsure whether you qualify, this tool is a great place to start.
For those taxpayers that believe they will qualify for the child tax credit in 2021 but did not have to previously file a tax return, this portal allows you to inform the IRS. If the IRS determines you qualify for the credit, you will receive advance payments.
Unenrolling From Advance Payments
The IRS is allowing taxpayers to opt-out of receiving advance payments. Many may wonder why unenrolling is even an option, but here are some important reasons to consider opting out of the advance payments:
- Your 2021 income significantly increased. Since the advance payments are based on your 2020 (or possibly 2019) tax return, you may no longer qualify for the credit(s). If you receive advance payments now but ultimately do not qualify, you will need to repay the advance payments when you file your 2021 tax return.
- You will not claim a child in 2021 because of a separation/divorce agreement or change in other circumstances. Families who share custody and alternate claiming children on non-joint tax returns each year should take note. If you will not claim the qualifying child on your 2021 return, you should opt-out since you will need to repay the advance payments when you file your 2021 tax return.
- You rely on this credit to cover part of your tax liability. Receiving these advance payments may increase your balance due or reduce the refund you are accustomed to receiving.
The portals can be accessed at www.irs.gov/childtaxcredit2021. The website also includes resources and guidance to help with questions related to the advance payments. At the time this blog is being posted, you are still unable to update bank information or family status (babies born in 2021), or to provide changes to income. This enhance is forthcoming and will be accessible from the link above when released.
If you take no action now, the IRS will either issue a check or use the direct deposit information it has on file for each taxpayer, to send advance payments monthly. The monthly payment will be issued on the 15th of each month starting July 15th through December. For those who qualify for the enhanced credit, the monthly payment is expected to be $250 per child ($300 for those age 6 and under). For those above the income threshold but still under the previous child tax credit limit, the payment is expected to be $167 per child for the last six months of 2021.
It is important to note, the advance child tax credit payments are different from the three stimulus payments made in 2020 and 2021. With the stimulus payments, if you ultimately did not qualify you were not required to repay the amounts received. That is NOT the case for the child tax credit advance payments. If you are unable to opt-out for any reason, and you think you may not qualify for a 2021 child tax credit, consider setting the monthly payments aside in a savings account until you file your 2021 tax return to ensure you do not have a surprise tax bill with no cash to pay it in April 2022.