06/25/2021
The IRS will pay one-half of the total credit amount in advanced monthly payments beginning July 15 and ending December 15. The other one-half is claimed on the taxpayer’s 2021 income tax return. These monthly payments equate to $300 per month per child for children under age 6 years, and $250 per month per child for children aged 6 to 17. The IRS is using taxpayers’ 2020 income tax returns to estimate these payments (or 2019 returns if 2020 is not available). The caveat is that, unlike stimulus payments, if a taxpayer’s 2021 income tax return shows that he or she was overpaid by these advanced payments, they’ll be required to pay that amount back (or it will be subtracted from any refund).
The IRS released a portal this week that allows taxpayers to opt out of receiving the advanced payments. Instead, those taxpayers will receive the credit in a lump sum when they file their 2021 income tax return. Taxpayers within or near the income limits in 2020 who will earn more in 2021 should considering opting out of these payments, or plan for the potential tax consequences when they file their 2021 return. Divorced parents who alternate claiming their children for child tax credit purposes should likewise consider opting out. For taxpayers who adequately plan for the possibility of a higher tax bill in 2021 (or lower refund), the payments are in effect an interest-free loan.
The portal to opt out can be found here. In order to opt out starting with the July 15 payment, taxpayers must opt out by Monday, June 28, 2021. It is important to note that once a taxpayer opts out, they cannot opt back in. Additionally, for joint filers, both spouses must opt out.
If you have any questions on the child tax credit, please contact any member of the McGrath North Tax & Estate Planning Practice Group.
Parents: Why You Might Want To Consider Opting Out Of The Advanced Child Tax Credit Monthly Payments
Pursuant to the American Rescue Plan Act enacted earlier this year, the child tax credit was increased to $3,000 annually per child for children ages 6 to 17, and $3,600 annually per child for children under age 6 (up from $2,000 per child). Married couples filing jointly with an adjusted gross income (“AGI”) of less than $150,000 per year are eligible for the full increased credit. Single filers with an AGI of less than $75,000 are eligible for the full increased credit. AGI is generally a taxpayer’s income less deductions. This amount can be found on Line 11 of the 2020 Form 1040 (personal income tax return). The increased portion of the credit is phased out entirely for joint filers with an AGI of more than $170,000 and single filers with an AGI exceeding $95,000.The IRS will pay one-half of the total credit amount in advanced monthly payments beginning July 15 and ending December 15. The other one-half is claimed on the taxpayer’s 2021 income tax return. These monthly payments equate to $300 per month per child for children under age 6 years, and $250 per month per child for children aged 6 to 17. The IRS is using taxpayers’ 2020 income tax returns to estimate these payments (or 2019 returns if 2020 is not available). The caveat is that, unlike stimulus payments, if a taxpayer’s 2021 income tax return shows that he or she was overpaid by these advanced payments, they’ll be required to pay that amount back (or it will be subtracted from any refund).
The IRS released a portal this week that allows taxpayers to opt out of receiving the advanced payments. Instead, those taxpayers will receive the credit in a lump sum when they file their 2021 income tax return. Taxpayers within or near the income limits in 2020 who will earn more in 2021 should considering opting out of these payments, or plan for the potential tax consequences when they file their 2021 return. Divorced parents who alternate claiming their children for child tax credit purposes should likewise consider opting out. For taxpayers who adequately plan for the possibility of a higher tax bill in 2021 (or lower refund), the payments are in effect an interest-free loan.
The portal to opt out can be found here. In order to opt out starting with the July 15 payment, taxpayers must opt out by Monday, June 28, 2021. It is important to note that once a taxpayer opts out, they cannot opt back in. Additionally, for joint filers, both spouses must opt out.
If you have any questions on the child tax credit, please contact any member of the McGrath North Tax & Estate Planning Practice Group.
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