New IRS Update: 2021 Tax Credit Information
By Amy Manderscheid
Read time: 4 minutes
The IRS has been releasing information about an advance payment plan on the child tax credit.
If you want to opt-out, this must be done no later than June 28, 2021.
While this advance payment may provide up-front relief for some families, these monthly payments may result in a very large tax bill at the end of the year.
What are the payments?
First, it’s important to know that these payments are not stimulus checks like those we have received this past year. They are an advance payment on your tax deductions for next year.
The payments will be automatically deposited into your account on the 15th of each month, or the next business day if the 15th falls on a weekend. If you haven’t used direct deposit for tax refunds in the past, the checks should be delivered through postal mail and could be delayed from the anticipated 15th date.
In past years, the child tax credit deduction was $2,000. For every qualifying child the IRS would decrease your tax liability owed by $2,000 when you filed your tax return. For example, if you have 2 children, under the age of 18, you would typically see a $4000 deduction from your tax liability.
For 2021, the Child Tax Credit is $3,000 per child ages 6-17 and $3,600 for any child under six. This change has only been approved for the 2021 tax year and is expected to return to the standard $2,000 for 2022.
With this advance, you will have the option to receive half of your new 2021 child tax credit in monthly payments from July 15- December 15 of 2021. The standard payment will be $250 per child ages 6-17 and $300 per child under 6.
If you accept the monthly payments, you will receive half of your child tax credit now, and then the other half you will claim when you file your 2021 tax returns next year in 2022.
The monthly payments will be based on your adjusted gross income reported on your 2020 tax return.
If you end up making more than $75,000 for single filers or $150,000 for joint filers, you may not be eligible for the whole $3,000-$3,600 per child. The credit slowly phases out for higher earners.
If you do not accept the payments now, you would be eligible to claim $3,000 or $3,600 per child off your total tax bill at the end of the year. (depending on your AGI from 2021)
By default, the IRS has placed everyone on the participation list. If you wish to decline the payments, you MUST opt-out through their online portal.
You can OPT-OUT HERE.
There are some reasons why taking the monthly payments will be a good idea and some reasons why it may not. Since this is NOT a stimulus, you could get into a situation where you have to pay the money back if you take the payments and your financial situation changes.
Did you owe taxes?
For anyone that owed a significant amount of money last year, taking these payments upfront could increase the amount of taxes you owe at the end of the year. It may not make your tax liability better; it could cause that number to increase.
Will you make more income this year?
If you sold the property for a gain and earned more income in 2021, you could have to pay the credit back when you file your 2021 tax return because you owe more taxes.
If you switched to a higher-paying job, for instance, or your spouse went back to work after being unemployed for most or all of 2020, you could be in a higher tax bracket next year.
How to opt-out
You can LOG IN HERE AND CHOOSE TO OPT-OUT. Everyone eligible for the checks will automatically be enrolled and start to receive them beginning July 15 unless you have designated not to accept the payments.
How do you opt-out of the monthly child tax credit payments?
Here's how to opt-out of the monthly payments:
1. Head to the new Child Tax Credit Update Portal and tap the Unenroll from Advance Payments button at the bottom of the page.
2. On the next page, sign in using your IRS account or your ID.me account. If you have neither, the page will walk you through setting up an ID.me account.
3. On the next page, the Child Tax Credit Update Portal, you can see your eligibility and unenroll from the monthly payments
You can opt-out any time this year and not receive your remaining monthly payments.
To unenroll, the IRS said you must opt-out three days before the first Thursday of the month to not receive the next month's payment. See the chart below for more. If you miss that deadline, the IRS said you will get the next scheduled advance payment until the agency can process your request to unenroll.
The IRS said currently, if you unenroll, you can't re-enroll. Starting in late September, you will be able to opt back in.
CHILD TAX CREDIT PAYMENT UNENROLLMENT DATES
|
Payment Month |
Unenrollment Deadline |
Payment Date |
|
July |
June 28 |
July 15 |
|
August |
Aug. 2 |
Aug. 13 |
|
September |
Sept. 30 |
Sept. 15 |
|
October |
Oct. 4 |
Oct. 15 |
|
November |
Nov. 1 |
Nov. 15 |
|
December |
Nov. 29 |
Dec. 15 |
IMPORTANT NOTE: If you are married filing jointly, both spouses must unenroll.
Prepare now
Be sure to talk to your tax preparer if you have questions or concerns about if accepting the monthly payments is suitable for you and your family. If you want to opt-out of the July 15th payment, this must be done no later than June 28, 2021. You do have the ability to opt out of individual monthly payments.
The IRS has also released a second portal for any citizens who are not required to file a tax return each year. This second portal gives individuals an opportunity to provide the IRS the needed information to receive the advance payments as well.
Every day, we get many questions about tax returns and how minister’s taxes are different from taxes paid from secular work. That is why here at StartCHURCH, we have a fantastic CPA team that specializes in ministerial taxes. Please give us a call at 877-494-4655 or click the link below to schedule a call with a specialist if you have any questions.
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