COVID-19, Tax

2021 Advance Child Tax Credit Payments | Opt Out to Claim Full Credit on Tax Return

Legislation passed by the Biden Administration in March 2021 has authorized the IRS to send advance Child Tax Credit payments to taxpayers who qualify. The federal Child Tax Credit has been increased to $3,600 per dependent child ages 5 and under and $3,000 per dependent child ages 6-17. The advance monthly payments begin July 15, 2021. They are based on a taxpayer’s 2019 or 2020 federal tax returns.

Scotty Sykes, CPA, CFP® addresses why you may choose to opt out of this advance payment program to support better results on your 2021 tax return. Before you accept payments or opt out, speak to the pharmacy CPA advisors at Sykes & Company, P.A. to determine the right tax planning advantages for you.

Eligible taxpayers will receive 50% of the credit in advance monthly payments starting in July through December 2021, and they can claim the remaining credit on their 2021 taxes. Taxpayers may opt out of the advance payments and claim the entire Child Tax Credit on their 2021 tax return by contacting the IRS. Visit irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.

The phase-out of this Child Tax Credit for 2021 begins at $150,000 modified adjusted gross income, if filing jointly. Qualifying dependent children must be 17 or younger at the end of 2021 for taxpayers to claim the credit.

Talk to us at Sykes & Company, P.A. with your questions.

If you prefer to read this content, the video transcript is below.

New legislation Biden passed in March authorized an advanced payment for your child tax credit. So it actually expanded the child tax credit amounts to $3,600 per qualifying child if you’re under five, 5 and under, and then $3,000 if you’re over or 6 to 17. That’s up from the $2,000 per child. So there’s been an increase in the credit amount and actually they’ve authorized the IRS to advance that money to eligible taxpayers. And the IRS is going to use your 2019 or 2020 tax return to determine your eligibility.

And so there’s going to be taxpayers [that] start receiving monies directly from the government monthly beginning in July of 2021 ending in December 2021. And so if you have one child [at] $3,600, I believe that’s $350 a month. If you’re under the older child over between 6 and 17, it will be $3,000 total. So $250 a month, and they’re going to start paying that out in advance.

Now taxpayers can opt out of this program. And so you’re not going to receive any advanced payments. You’ll reclaim the credit, if you’re eligible on your tax return, when you file your tax return. And one of the reasons why taxpayers may want to opt out here is because if you’re getting an advanced credit based on a prior year tax return ‘19 or ‘20, and your 2021 is significantly different, and you have some differences here, you may be on the hook for having to pay that money back.

And so, my thoughts here are, if you do not need that extra money, and I mean need that money, you may want to consider opting out of this program, going to the irs.gov and opting out, and just claiming that credit on your tax return when you file. Because you do not want to be in a situation where if you got three or four kids and you’re getting almost, you know, $600-$700 bucks or whatever it may be a month, and then something happens say at the end of 2021 [that] pushes you into a higher tax bracket or something like that, or pushes your modified, adjusted gross income over $150,000, which is when the phase-outs begin for this credit, you could find yourself in trouble having to pay back some significant monies here. So you need to be careful, talk to your advisors, but you need to probably consider if you do not need this money opting out and avoiding any headache of having to pay this money back come tax time in 2022.

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