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Advance Child Tax Credit: Should You Accept or Unenroll? Thumbnail

Advance Child Tax Credit: Should You Accept or Unenroll?

Financial Planning Tax

By: Marla R. Chambers, CPA, CFP® - Senior Financial Planner

Starting July 15th, over 36 million families may qualify for monthly Advance Child Tax Credit (CTC) payments in amounts of up to $300 per month for qualifying children under age 6 and up to $250 for qualifying children ages 6 to 17.

Like the Economic Impact Payments (EIP) that families received this past year, the Advance CTC payments will be reconciled on their 2021 income tax return to make certain that families who did not receive the full amount allowed receive their fair share.  

However, unlike the EIPs, if families receive too much in Advance CTC payments, they may be required to repay the overpayment on their 2021 tax return.  To avoid a surprise tax due next year, now is the time to calculate the projected amount of Child Tax Credit to which you will be entitled and notify the IRS if you need to make a change to the Advance CTC payments.

The IRS will use your 2020 tax return (or 2019 return if 2020 has not been received or processed) to calculate the estimated amount of Advance CTC payments.  The advance payments will be reduced if your Modified Adjusted Gross Income (MAGI) exceeded:

  • $150,000 filing as Married Filing Jointly or Qualified Widow or Widower
  • $112,500 filing as Head of Household
  • $75,000 filing as Single or Married Filing Separately

If you do not receive the full amount allowed in the monthly Advance CTC payments, you will receive the additional amount as a tax credit and increased refund (or reduced amount of tax due) on your 2021 tax return.  

The following are a few examples where you may be entitled to a higher CTC than you receive in Advance payments:

  • Your 2020 MAGI exceeded the applicable limit, and your 2021 MAGI is lower due to reduction in income or increased deductible expenses or losses that reduce MAGI below the limit.
  • In 2020, you filed as Single or Head of Household and are married in 2021 and will not exceed the higher $150,000 Married Filing Jointly limit.
  • You have an additional eligible child in 2021 compared to 2020.
  •  You did not file a 2019 or 2020 income tax return but have a qualifying child in 2021.

The following are a few examples where you may receive Advance CTC payments and be required to repay part or the entire amount on your 2021 Income Tax Returns:

  • In 2020, your MAGI was under the applicable limit for your filing status, and in 2021 your MAGI exceeds the applicable limit.  
  • In 2020, you filed as Married Filing Jointly, but were divorced in 2021 and your 2021 MAGI will exceed the applicable limit noted above.
  • In 2020, you claimed a dependent, but will not be eligible to do so in 2021.

How to unenroll:

If you start receiving Advance CTC payments and are not entitled to part or all of the monthly payment amount, you should unenroll from the advance payments.  To unenroll, go to https://www.irs.gov/credits-deductions/child-tax-credit-update-portal.  To create a login, you will need a password and allow Multi-factor Authentication (text, email, call).  You will be required to upload a photocopy of a driver’s license, State ID, or passport through the ID.me website and enter your Social Security Number.  Then, you will also need to allow the ID.me platform to scan your face to compare against the photo ID on the driver’s license, State ID, or passport.  Once you log in to the website, you should be able to unenroll in the Advanced CTC payments.

How to sign up for Advance CTC Payments:

If you did not and will not file a 2020 income tax return and have a qualifying child in 2021, you may use the non-filer sign-up tool to request Advance CTC payments.  This tool is located at https://www.irs.gov/credits-deductions/child-tax-credit-non-filer-sign-up-tool.  

If you are not required to file a 2020 tax return, this non-filer sign-up tool may also be used to request the 2020 Recovery Rebate Credit or the third Economic Impact Payment that you did not receive.

Feel free to contact Buckingham Advisors to speak to a tax planner about your specific situation.