2021 Child Tax Credit

There are LOTS of questions about the 2021 Child Tax Credit. Is it better to opt out of the advance payments of the credit or not? Well, like most tax topics, it depends on your specific situation. Here is a summary of things to consider when deciding what is best for your family.

For married taxpayers with 2021 income under $150,000, you are eligible for a $3,000 tax credit per child under the age of 18 as of January 1, 2022. For children under the age of 6, the credit increases to $3,600 per child. For married taxpayers with income of $150,000 or higher, the Child Tax Credit remains at $2,000 per child, which it has been for the last few years. If you do not opt out of the advanced payments, the IRS will issue you an advance payment of half of the expected tax credit as a monthly payment from July – December 2021. The remaining half of the credit will be applied to your 2021 tax return when filed this coming tax season.

Essentially, the IRS is pre-paying you part of your 2021 tax refund in monthly installments.

Why opt out? A few scenarios to consider:

The IRS will look at your 2020 tax return to determine your monthly advance amount. If your 2020 income was under $150,000, the IRS will anticipate you qualifying for the increased $3,000/$3,600 credit for 2021. If your 2021 income ends up being over $150,000, you will only be eligible for the original $2,000 credit, even though you have already been prepaid $1,500 or $1,800 of the credit. The remaining $500 or $200 will be the only portion of the credit that will be applied to your 2021 return at filing time. This could result in a balance due or a dramatically reduced refund at filing time.

If you usually owe taxes when you file your return, accepting the advanced payments will likely increase your balance due.

If your child turns 18 prior to January 1, 2022, you are not eligible for the Child Tax Credit with your 2021 taxes. You should not be receiving the advanced payments for this dependent.

You can opt out using the IRS Child Tax Credit Update Portal on the IRS website. Please note that both spouses must opt out or the IRS will continue to send 50% of the monthly payment.

If you want to opt out of the September – December advance payments, you must register with the IRS Child Tax Credit Update Portal at IRS.gov/credits-deductions/child-tax-credit-update-portal. You must opt out by September 5th for the September payments (that date is subject to change so opt out ASAP if this is your plan).

Clients - have more questions about your specific situation? We are here to help!