While receiving the monthly payments for the advance Child Tax Credit may seem like a helping hand, for some families, it might make the most sense to opt-out. Here are a few situations where that may be the case:
Self-employed parents who typically pay quarterly estimates or often owe tax on their tax return
Other families who often owe tax or only receive a small refund on their tax return
Families preferring to get a lump sum refund rather than the smaller payments
Families who are separated or divorced and share custody of the children and alternate claiming them as independents
If you are in one of the above situations or are just unsure what is the best choice for your family, please reach out to your tax preparer to help assess your best option.
If you have decided you want to opt-out, want to view your payments, or need to update your bank account and/or mailing address, the IRS has tools available to help. For information on how to access these tools, refer to our blogpost: IRS rolls out two new online tools to help families manage Child Tax Credit Payments. The IRS has stated that by late summer, they also intend to allow you to make changes to your dependents, marital status, and income as well as re-enroll if you have previously unenrolled through these tools.
Be aware that if you file a joint tax return, both parents must unenroll or you’ll still receive half of the payment that you would receive with your spouse. Also, the unenrollment process involves identity verification and many taxpayers have found it helpful to complete it via a mobile device rather than a computer.
Advance Child Tax Credit payments are based on your 2020 tax return, or 2019 if 2020 has not yet been filed. For those who do not opt-out and receive the payments, and your 2021 tax situation has changed, you may end up having to repay some or all of the credit if you receive payments greater than the credit you are actually allowed. There is full and partial repayment protection available, that can reduce or eliminate any amount of overpayment being required to be repaid if the modified AGI on your 2021 tax return is under $120,000 for a married filing joint return; $100,000 for head of household; and $80,000 for singer filer or married filing separate. Follow this link for more details from the IRS. Be sure to consult with your tax preparer if you still have questions or need assistance.
The IRS also warns to be aware of potential scams trying to steal your personal information and money. “The IRS doesn't initiate contact by email, text messages, or social media channels to request personal or financial information – even information related to advance Child Tax Credit payments. Also, watch out for emails with attachments or links claiming to have special information about advance Child Tax Credit payments or refunds of the Child Tax Credit.”