Made possible by the American Rescue Plan that was passed earlier this year, eligible American families will now receive enhanced child tax credits. As we’ve noted in the past, qualifying families are due to receive a $3,600 credit for children under 6 and $3,000 for children ages 6-17. That’s up $1,600 and $1,000 from previous amounts, respectively.
But another interesting change with these tax credits is in how they’re going to be dispersed. Rather than having to wait to claim the credits when families file their 2021 income taxes early next year, the IRS is dispersing funds to the bank accounts of qualifying families in advance. Beginning July 15, the IRS will be depositing an advance payment each month through the end of the year, with the remaining amount to be claimed when individuals file their taxes. The thinking behind this is that it will permit families to take advantage of this tax credit when they need it, rather than have to wait to claim it all.
However, the IRS is also allowing families to opt out of receiving advance payments – and based on your situation, this is something that you may want to consider. Let’s take a look:
Should I Opt Out of the Child Tax Credit Payments?
There are a few situations where it might make sense to opt out of advance payments and instead claim it all when you file your 2021 taxes. Perhaps the most significant reason is if your income levels have changed. Keep in mind that the payments the IRS began dispersing on July 15 are based off of your 2020 tax filings. So based on what you earned last year and what you’re earning in 2021, you could be in a different tax bracket and possibly have to pay some of this advance credit that you receive back come tax time. Keep in mind that the credit families receive is based on their income. Single parents earning less than $75,000 and married couples who earn less than $150,000 combined are eligible for the full credit. Those who earn more will receive less of the credit.
Additionally, if it’s your goal to break even come tax time, you may want to wait to claim these credits to offset any potential balance that you may owe. Under this distribution plan, qualifying families receive about half of the credit in monthly increments and can claim the other half come tax time. But if you receive – and spend – distribution payments, you could end up on the short end of the stick at tax time and owe money to the IRS.
How to Decline the Advance Child Tax Credit Payments
It’s easy to opt out of these payments so you can claim the full credit at tax time. Just visit the IRS’ portal, create an account and unenroll from the advance portion. If you unenroll now, you’ll likely have already received the July payout, but you can prevent future monthly dispersement.