Let’s start with “What is the Advanced Child Tax Credit?” There were changes to the amounts of the Child Tax Credit and how you can receive it in advance as part of the American Rescue Plan Act, for 2021 only. The act changed the Child Tax Credit for 2021 by increasing the credit to $3,600 for children under age 6, and $3,000 for children ages 6 through 17. Also for 2021, you will receive half of the credit in equal monthly payments from July 15th through December 15th, if you qualify based on your 2019 or 2020 tax returns – depending on which has been filed.
There are income limitations to receiving the increased Child Tax Credit, which will affect your advanced payments. The credit is phased out for jointly filed returns at $150,000, head of household filed returns at $112,500, and single filed returns at $75,000. Your advance payments will be adjusted based on your 2020 (or 2019) filed income tax return.
If you do not opt-out of the advanced payments, you will automatically receive the payments starting in July of this year. You may be asking – Why do I want to opt-out of FREE MONEY? There are some instances where you may not want to receive this credit in advance. If your income goes above the phase-out amounts this year, it could affect whether you get a refund or have to pay taxes next year on your tax return. For those who are self-employed, you could opt-out and decrease your estimated tax payments. There are also divorced couples who switch the dependents on alternating years, which would cause a problem with the advance payments.
To opt-out of the payments, you can go to the IRS website There will also be the ability to update your status (number of dependents and income information) so that you receive the correct amounts.
As always, you will want to consult with your tax preparer to see how the advance payments will affect your particular tax situation.
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