Special Topic 2021: Advanced Child Tax Credit Payments
Child tax credit- What is it and what does it matter to you? Let's cover this together.
Let's discuss the advanced child tax credit payments....
What does it even mean? Why is it important for you?
If you’re one of the thousands of Americans that received a notice that you are going to be receiving an advanced payment or maybe you’ve already received a direct deposit in your bank account and have no idea where the money came from. I know many of my clients have reached out and asked “is this something they have to pay back? Or can they keep it?”
I will share a couple of things that you should know about these payments - But remember, you should still consult your accountant to confirm the right move for your specific situation.
Let’s start with the basics… What is an advanced child tax credit?
Due to COVID, Congress expanded the normal credit you get (and by credit, I mean, money back on your tax return), essentially, for minor children for the 2021 tax year. This year you will get a much higher amount depending on the age of your child.
The government also decided to allow people to get some of that money earlier, instead of waiting until they file a 2021 tax return. It was decided to give you half of the amount that you would be entitled to based on your income from the previous year. The downside, iif the situation changed, you will have to repay back that credit at the end of the year when you do file your tax return.
So as a general rule, I advise my clients to opt out if they are financially able (I've certainly opted out myself.) The reason is that if you owe money to the government normally, you would owe even more if you sign up for this credit for this advanced payment. Unless you need money, opt out to avoid having to repay that credit.
Number two is that it’s certainly a logistical nightmare to opt out. I've gone through it myself to see what the process is like so I would be better able to advise clients on how to do that. Here’s how:
- Go to the IRS website (make sure that the site you open has a .gov ending to make sure that you are opening the right website).
- You will have to sign up for ID.gov by uploading your driver’s license, scanning your face, and answering some security questions. (Yes, it IS a headache).
- Once you’re signed up you'll be given an opportunity to say “yes, I want to opt out of this payment”.
If you don't opt out you’ll receive a monthly payment thru December from the IRS deposited in your bank account.
If you worry at all that you may potentially be liable to pay it back at the end of the year, opt out. If your income situation has changed, and your income is higher than last year, opt out. The IRS is basing what they are giving you on your prior year’s return tax return. They are expecting YOU to know whether or not you would still qualify.
Remember, there are deadlines for you to opt out monthly (usually before the first of the month.
Another thing that I want to mention is that some people have been unable to get their ID verified through that IRS verification process. Unfortunately, nobody really has any tips or tricks on how to get through that piece. Best advice, keep trying. The IRS gets overwhelmed, but the technology that they've used actually was pretty impressive.
If you receive advance payments or CTC, which stands for “child tax credit”, you will need to provide your accountant with the exact amount and date of each payment you receive so your accountant preparing your tax return can report it. Your refund potential could be delayed and/or reduced if you do not report or underreport the amount, so make sure that you pay attention to that.
Now, if you don't have minor children, this doesn't apply to you. There are different amounts for kids under six for kids under 12, for kids under 17, and so on and so forth. So, make sure that you also keep your accountant in the loop in terms of you receiving those things and you potentially having to repay that money,
If you don’t get a chance to opt out, and worry you may be at risk for owning taxes, I would really advise you to set aside as much of that money as you can into a separate account in case you have to pay it back. If you know you will be safe from owing and are in need of it, great you can keep it and use it to get yourself and your family to a better place!
Okay, one more disclaimer
Nothing in this podcast should be construed as legal or tax advice, and always consult your tax accountant or tax preparer, or tax attorney, regarding implications for your specific situation. My job is to make you aware of these things so that you ask the questions because if you don't ask the questions, someone can miss something, and then you will have an unpleasant surprise.
Hope you’ll follow me on Instagram @tatianatsoir.author and send me a DM with any additional questions or topics you would like me to cover in future episodes.