Child Tax Credit advances set to begin in July

By Dawnita Fogleman

Staff Writer

Important changes to the Child Tax Credit will help many families get advance payments of the credit starting this summer, according to the Internal Revenue Service (IRS).

“It is not income, it is a credit on your tax return,” said Andra Smith, CPA and specialist with High Plains Technology Center. “If you take the advanced credit you will get half of it in six monthly payments and it will lower your credit on your 2021 tax return by half.”

Becky Ladd, CPA, PC said the most frequent question she’s received is - Should I opt out of the advanced child tax credit?

“That depends on your tax situation,” Ladd said. “But keep in mind once you opt out you can not reenroll.”

According to the White House, the American Rescue Plan increased the Child Tax Credit from $2,000 per child to $3,000 per child for children over the age of six and from $2,000 to $3,600 for children under the age of six, and raised the age limit from 16 to 17.

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“The simplest answer is, that if your W-2 withholdings typically pay your tax balance and you get your child tax credit back as a refund, then receiving the monthly advance will allow you to get part of your refund back on a monthly basis,” Ladd explained. “Your refund will be reduced when you file your tax return.”

Ladd cautions that if the child tax credit typically pays your tax balance, then consider either opting out or increasing W-2 withholdings.

“If you are self-employed or have additional sources of income besides your W-2s you should really consult your tax accountant if you would like to keep the monthly payments,” Ladd said. “Those with additional sources of income will be the most likely group to need to opt-out.”

According to the IRS, they will pay half the total credit amount in advance monthly payments beginning July 15.

“For 2021 you will be receiving 1/2 of your child tax credit as an advance, because we are already 1/2 way through the year,” Ladd said. “Next year, you would be receiving the whole child tax credit as monthly advances, which will reduce your end of the year tax refund even more.”

The IRS website says that if you filed a joint return, your spouse will also need to unenroll, according to Ladd.

“Unenrolling is an individual action,” Ladd said. “If you spouse does not unenroll, they will receive payments for their portion of the advance Child Tax Credit.”

To qualify for advance Child Tax Credit payments, taxpayers must have:

• Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return

• Given information in 2020 to receive the Economic Impact Payment

• A main home in the United States for more than half the year

• A qualifying child under age 18 with a valid Social Security number at the end of 2021

• Made less than certain income limits.

The IRS uses information provided earlier to determine qualification and automatically enroll citizens for advance payments.

No additional action is needed to get advance payments. These changes apply to tax year 2021 only, according to the IRS, though the Biden administration is proposing to extend it in his American Families Plan.

“To opt out you need and IRS account or an ID.me account,” Ladd instructed. “This requires you to verify your identity to set up the account. Some find this process easy to navigate, and others more difficult.”

To register if you haven’t filed, or to opt out, visit https://www.irs.gov/creditsdeductions/ advance-child-tax-credit-payments-in-2021 and follow the instructions on the website.