This month the IRS started sending out advances for the 2021 Child Tax Credit. Instead of taking the full amount of the eligible Child Tax Credit when filing taxes, as has been done previously, these monthly payments advance half of that credit to taxpayers.
For those receiving advances, half of the credit will be received via advance direct payments (July-December) and the other half will be taken on your tax return. These payments will automatically be sent out to those the IRS considers eligible unless taxpayers opt out of these advance payments.
If you have received an Advance Child Tax Credit payment via check or direct deposit from the IRS,We are recommending that you opt out of Advance Child Tax Credit Direct Payments. You can do this in about 10 minutes online via the IRS website (see below). If you have already received your first payment, we still recommend opting out of future advance payments.
This will NOT affect the amount of the Child Tax Credit you will receive for 2021 taxes.
Why Opt Out of Direct Payments?
It may create the burden of an unexpected tax bill
The IRS is relying upon historical tax data to calculate your advance. (your 2019 return or if filed your 2020 return). If you receive more in advances then eligible for in 2021, you will most likely need to pay that amount back to the IRS with your 2021 tax return.
While these advance payments can help many families in need, it can create confusion for those with higher incomes who receive these payments with multiple phase out calculations and adjustments needed when reconciling the advances to your 2021 income amounts.
It complicates your tax plan
As we seek to be proactive in our tax planning, this advance makes it a challenge to plan for your 2021 taxes. We do our best to minimize any surprises at tax time but we are flying blind in relation to these advances and reconciling that against your projected 2021 income.
The IRS will be automatically adjusting advance payments between 2019 and 2020 taxes filed creating a recipe for an unexpected tax bill when completing your 2021 taxes.
By opting out, you will receive the full credit you are eligible for without surprises on your tax bill
Opting out of the advance credit will not affect the amount of the Child Tax Credit you will receive for 2021. It simply allows you to receive that credit when filing your tax return without the reconciliation process of the advance payments or unexpected amounts you may owe to the IRS for advances you received exceeding your eligible credit.
How to Opt Out of Direct Payments
You can opt out of direct payments online in about 10 minutes online via the link below. Each taxpayer must opt out individually via the Portal (including married filing jointly). For those filing jointly if a spouse does not also opt out, the IRS will continue to send reduced advance payments.
If you already have an IRS username (for example if you had updated your banking information online for COVID relief direct payments), you can sign in via your user name and opt out in a few clicks.
If you do not have an IRS username or ID me account, you can create one and then proceed to opt out of the advance payments.