The first two Child Tax Credit (CTC) prepayments have been distributed to families across the country, including some who did not expect to receive them. The payments were enacted when the CTC was expanded through the American Rescue Plan of 2021 (ARPA).
Under ARPA, eligible taxpayers receive half of the annual CTC as monthly installments from July through December 2021 and the remaining half of the credit when filing 2021 taxes. The full credit is $3,600 per child under 6, $3,000 for children ages 6 to 17, and $500 for 18-year-old children or full-time students who are 19 to 24.
The remaining payments will be distributed on September 15, October 15, November 15, and December 15.
While some families need the extra cash, the prepayments may lead to significant impacts on tax liability when it’s time to file 2021 tax returns. If you have been receiving the payments and are concerned about how they will affect your taxes, you may want to opt out now.
Here are a few things to consider:
- To be eligible for the full credit, taxpayers must meet the annual income requirement of $75,000 or less if filing individually and $150,000 or less if married filing jointly. Eligible families will receive six payments of up to $300 per child under 6 and up to $250 per child 6 to 17.
- Because the tax payments are automatically sent by check or direct deposit based on recent tax return information, it’s possible that there will be some overpayments of the credit.
- Taxpayers who have an increase in income and eligibility in 2021, usually receive a large refund, or typically break even may also end up owing the IRS in April.
- Because of the potential impact on taxes, it may be wise to opt out of the advance payments or at least set some of the money aside.
- If you choose to continue receiving prepayments, keep good records of the amount received.
- You must manually opt out if you don’t wish to receive prepayments.
To unenroll from advance payments:
- Visit the IRS Child Tax Credit Update Portal.
- Use existing IRS username or ID.me or enroll for a new one with photo ID.
- If you are married and filing jointly, you must unenroll both spouses.
- Unenroll at least three days before the first Thursday of the next month.
- August 30 for September payment
- October 4 for October payment
- November 1 for November payment
- November 29 for December payment
If you have questions about the CTC payments or how they may impact your situation, please contact the tax professionals at BSB. We are here to help.