Don't Mess With Taxes

Advance payments this year of some of 2021's Child Tax Credit amounts can be a nice helping hand for some families. But the early distributions aren't for everyone. Those who want to wait to claim the tax break when they file in 2022 can go online to let the IRS know they'd rather wait. (Photo by Juan Pablo Serrano Arenas via Pexels)

The Internal Revenue Service is finalizing distribution of advance payments for the last half of 2021 to families that qualify for the newly enhanced Child Tax Credit.

The Advance Child Tax Credit (AdvCTC) payments of $250 or $300 per month, depending on the ages of your children, will start showing up in bank accounts or mail boxes around July 15. The mid-monthly amounts will continue through December.

But the IRS also is working to ensure that taxpayers who do not want the tax credit cash early can refuse the money.

Why would they want to do that?

Because, as noted in my blog post yesterday (which just happened to be June 21, Child Tax Credit Awareness Day), they might have to pay back all or part of the advance credit amounts they get this year.

Not no, just not now: To prevent that from happening, the IRS today activated a new online tool where filers who don't want the advance payments can electronically say no thanks.

Don't freak out. This isn't a flat-out refusal of the Child Tax Credit.

Rather, it a way to get your full qualifying amount as a lump sum when you file your 2021 Form 1040 next year.

If you get some of it in advance, as noted in my earlier post, those amounts you get over the next six months will be based on prior tax info the IRS has about your filing circumstances. If those have changed in 2021, that data is outdated.

And the changes could push you into a payback situation when you file next year.

So if you decide you don't need or want the Child Tax Credit money this calendar year (and complications next filing season), head on over to the now operational Child Tax Credit Update Portal at IRS.gov.

There — that's a screen shot of it below — you can opt out of the advance payments.

Accessing the update portal: As with all IRS.gov interactions, there's a precise procedure to follow.

The Child Tax Credit Update Portal is available to any eligible family with internet access and a smart phone or computer. It's also password protected.

You also must verify your identity. This is easy if you who have an existing IRS username or a verified identity account with ID.me, a trusted third party for the IRS. You can either account to sign in to the Child Tax Credit Update Portal.

If you don't have such an existing verified account, you'll be asked to prove your identity with a form of photo identification using ID.me.

And if you don't have internet access or otherwise cannot use the online tool, you can unenroll by contacting the IRS at the phone number included in the letter it sent a few weeks ago to potential Advance Child Tax Credit recipients.

The phone call might be the best option, judging from the reactions on social media by tax pros, who for the most part are not impressed with its accessibility.

Updates, upgrades on the way: If you can make the IRS Child Tax Credit online tool work for you, good. 

Or maybe you just want to use it to see if you're eligible. Right now, it also offers you a way to verify your eligibility for the payments.

The IRS says future versions of the Child Tax Credit Update Portal, including a version for taxpayers whose native language is Spanish, will let credit recipients check the status of their advance payments.

Other planned updates include the ability to check payment history and adjust bank account information or make mailing address changes.

The bank account update option is expected to be available soon. Like late June — that's next week! — soon. This feature will let AdvCTC recipients revise the delivery destination for payments starting in August.

As for August, the IRS says a feature is planned to be operational that will allow taxpayers to update their mailing addresses.

Future upgrades, such as the ability to let the IRS know of family status and income changes, also are expected to be unveiled later this summer and in the fall.

Eligibility assistant also operational: If you didn't get an AdvCTC letter from the IRS and think you might qualify, then you'll want to take advantage of another Child Tax Credit tool the IRS also unveiled today.

By answering a series of questions posed by the IRS' new Child Tax Credit Eligibility Assistant, you can find out whether you can get the credit in advance.

The eligibility assistant doesn't ask for any personalized information, so there's no need for strict security sign-in protocols. Rather, it's a good first step to take if you're unsure about whether you qualify for the AdvCTC payments.

If you find you do qualify, then you should file a 2020 income tax return ASAP or register for the advance payments using the Non-filer Sign-up Tool.

Correct information critical: Whether you decide to get your 2021 Child Tax Credit amount in advance this year or wait until you file your taxes in 2022, the portal is a good way to make sure that you and the IRS have all the necessary, and correct, data.

That's crucial in ensuring you get the appropriate amount of this tax break, which, as its name indicates, is a tax credit. That distinction means that the credit amount can offset any tax you owe.

The Child Tax Credit also is refundable, meaning it could get you some money back from Uncle Sam even if you don't owe taxes.

Better tax benefits in 2021: This child-related tax break always has been popular, but its taxpayer appeal was boosted back in March when the latest COVID-19 relief bill, the American Rescue Plan Act (ARPA) became law.

Instead of the usual $2,000 per child tax break, ARPA bumped up the Child Tax Credit to $3,600 for children age 5 and younger and to $3,000 each for youngsters from 6 to 17. Those pre-school kiddos will get you the $300 per month advances, with the older dependents accounting for the $250 payments.

Even better, the entire Child Tax Credit is fully refundable for 2021. Previously, it was only partially refundable.

Then, best of all for some qualifying taxpayers, ARPA added the advance payment option. Those monthly payments of around $300 to eligible families will start in July and continue through December.

But, as noted, those early deliveries work for some, not everyone.

So review your tax and financial circumstances. Talk with your tax preparer about the pros and cons of the Child Tax Credit receipt options.

And if need be, head to the now-available Child Tax Credit Update Portal to opt out of the advance payments.

You also might find these items of interest:

• IRS unveils online tool to help nonfilers get advance child tax credit payments
• Advance Child Tax Credit letter going to 36 million; money to follow starting in July
• The child care tax credit is a good claim on 2020 taxes, even better for 2021 returns

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