Jul 16, 2021
As we are heading into the second half of 2021, individuals are now starting to receive their advance Child Tax Credits payments as a result of President Biden’s American Rescue Plan. The law, signed in March, increases the overall child tax credit, expands it to include children turning 17 this year, and adds another annual $600 benefit per child under six years old. While the advance payment on the credit may be a welcomed windfall, there are some important aspects of this tax credit individuals should be aware of when receiving these payments.
Individuals with dependent children started receiving monthly payments on July 15th which are estimated to total half of the amount of their estimated 2021 Child Tax Credit. The other half of the Child Tax Credit will be received when the 2021 Tax Return is filed in 2022. Individuals are required to reconcile the payments received on their 2021 Tax Return so they should keep track of the payments received throughout the year and include that information with their tax documents.
If an individual receives more than what is due to them, they will be required to pay back the difference. This differs from the stimulus payments, where individuals were allowed to keep the additional funds. This primarily applies to those with a dramatic increase in income during 2021. An example of this scenario:
- If your income level qualified you to receive additional Child Tax Credits in 2020, and your new income level in 2021 does not, you will have to pay back the money received in regards to the additional Child Tax Credit you no longer qualify for.
Increase in Tax Due
The advance child tax credit received will be in lieu of claiming the tax credit on the 2021 income tax return. Since half of this credit will be received by the time the 2021 income tax return will be due, the amount of the child tax credit will be halved on the 2021 Return. This means that there will be fewer credits to offset against the tax due, which may cause a higher-than-normal tax due, or decrease the potential refund some are used to receiving. This holds especially true for those with a dramatic increase in income for 2021.
Opting Out of Advanced Payments
If taxpayers do not wish to receive the advanced payments of the Child Tax Credit, they can elect out of them. Typical reasons for opting out of the advanced payment are as follows:
- An individual normally has a balance due to the IRS after filing their taxes
- An individual doesn’t claim a dependent every year due to shared custody arrangements
- An individual’s dependent(s) is(are) aging out of the range of the credit
- An individual prefers having a large tax refund
Anyone wishing to elect out of the advanced payments, you may do so by clicking this link and following the instructions provided.
Changing Bank Account Information
If taxpayers would like to learn how to change/update their banking or direct deposit information, click here.
New IRS Portal
The IRS is currently developing a portal in which a user can enter updated information impacting the amount of payment an individual will receive. A user can do all of the following in this portal:
- Update marital status
- Enter in children born in 2021
- Re-enrollment into the Child Tax Credit if you were previously unenrolled
- Adjust your income for the calculation of the Child Tax Credit
As previously stated, this portal is still in development but the IRS is looking to release this portal in the coming months. Reach out to your WVC professional for questions on your specific situation.
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Categories: Tax Planning