Beginning July 15th, eligible families will receive advancements on their 2021 child tax credit of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 -17. Payments will be disbursed automatically from July until December 15th, 2021, with no action required. The question is – should families accept it or leave it?
TAKE IT: The IRS will pay half of the total child tax credit as advance monthly payments to families who filed their 2019 or 2020 tax return and claimed the child tax credit on their return. Taxpayers who don’t have earned income or don’t owe any income taxes can benefit from the advance credit even if they are not required to file a return.
LEAVE IT: The keyword in all of this is ADVANCE. These payments will equal one-half of the 2021 child tax credit, and the families will claim the other half when they file their taxes in 2022. These payments are not stimulus checks but advancements. These advances could result in an overpayment of child tax credits. In this case, the IRS may demand repayment of the credit come tax time. If you don’t usually receive a refund, the advance payments could cause you to owe. The advances will also affect divorced parents, especially if children move between households alternating the child tax credit.
If you are one of the families that qualifies to receive advance payments and want to avoid running into issues, take these steps:
(1) Look at your 2020 tax return to see where your finances stand.
(2) Consider talking to your tax advisor ahead of the first IRS payment on July 15th.
(3) Consider opting out and filing for the whole amount of the child tax credit on your tax return.