As part of the recently signed American Rescue Plan, major changes were made to the Child Tax Credit (CTC). For the 2021 tax year, families will have the option to receive advance payments of up to $300 per child, per month, starting in July.
These payments could greatly benefit many families, but some families prefer to avoid taking advantage of them. Perhaps you do not need the additional income right now or you would rather receive the credit as a lump sum at tax time.
Whatever your reason, opting out of the CTC payments is an option. In this article, we will outline the steps you need to take to opt-out and what to consider before making your decision.
Understanding the Advance Child Tax Credit Payments
The advance Child Tax Credit payments were introduced as a part of the American Rescue Plan Act of 2021 to provide financial support to families struggling in the pandemic. Eligible taxpayers can now receive up to $300 per child under the age of six and up to $250 per child between the ages of six and seventeen.
In order to qualify for these payments, taxpayers need to have filed their 2019 or 2020 tax returns, or have already registered with the Non-Filer tool provided by the Internal Revenue Service (IRS). The payments are also means-tested, which means that they are reduced gradually for taxpayers with adjusted gross incomes exceeding $75,000 for individuals, $112,500 for heads of household, and $150,000 for married couples filing joint returns.
Receiving the advance payments has several benefits for qualifying families, including more financial support throughout the year to cover for expenses such as childcare, rent, and bills. Families may also use the extra funds to invest in children’s education or other beneficial activities.
Moreover, some families may find that their tax liability is entirely wiped off or reduced when filing their taxes in 2022, as they would have received the full amount of the Child Tax Credit through the advance payments. However, it is important to note that taxpayers who receive more than they are eligible for may have to repay those overpayments when filing their taxes next year.
Taxpayers are advised to use the IRS’s updated Child Tax Credit Eligibility Assistant to ensure they remain eligible, and also to update their information with the IRS as needed, such as a change in marital status, income, or dependent eligibility.
Reasons to Opt-Out of Advance CTC Payments
Many taxpayers may choose to opt out of the advance Child Tax Credit (CTC) payments for various reasons. One reason could be the preference for a larger tax refund when filing taxes next year. Receiving the full amount at once may be more beneficial for some families, especially if they plan to use the money for something specific, such as paying off debt.
Additionally, some taxpayers might have concerns about potential overpayments. If the advance payments are based on estimated income and family information, changes in circumstances, such as a higher income or a new addition to the family, could lead to overpayments. In such cases, taxpayers could end up owing money to the IRS, which could be a financial burden.
It is essential to note that failing to opt-out when necessary can result in having to repay excess payments received. Therefore, it is advisable to review eligibility for advance payments and use the IRS online tool to make an informed decision. By doing so, taxpayers can ensure financial stability and avoid unexpected tax bills.
How to Opt-Out of Advance Child Tax Credit Payments: Step-by-Step Guide
The IRS has started issuing advance CTC payments to eligible families as part of the American Rescue Plan Act. These payments, which started in July 2021, provide financial assistance to help ease the burden of raising children.
However, not all families may need or want these advance payments, and it’s important to know how to opt out if you choose to do so. In this section, we’ll explain how you can easily opt out of advance CTC payments so that you can better manage your tax obligations and financial needs.
1. Access the IRS Child Tax Credit Update Portal
The IRS Child Tax Credit Update Portal is a useful tool that parents and caregivers can use to manage their child tax credit payments. To access the portal, simply go to the official IRS website and navigate to the Child Tax Credit Update Portal section. The portal is accessible on all devices, including desktops, laptops, tablets, and smartphones.
However, it is important to note that the portal requires a valid Social Security number or taxpayer identification number, as well as an email address and mobile phone number. Additionally, the portal is only available in English and requires a compatible browser such as Microsoft Edge, Google Chrome, Mozilla Firefox or Safari.
2. Register or Sign In
To access the portal, users must either register or sign in. To register, users will need to provide personal information including their Social Security number and filing status. If users have already created an account, they can simply sign in using their email address or username and password.
Registering allows users to view their tax information, update their personal details, and manage their account settings. To ensure the security of their sensitive information, users are reminded to use strong passwords and keep them safe from prying eyes.
Additionally, it is recommended that users enable two-factor authentication to add an extra layer of security to their account.
3. Opt-Out of Advance Payments
To opt out of advance CTC payments within the portal, users will need to log into their IRS account and navigate to the Child Tax Credit Update Portal. From there, select the “Unenroll from Advance Payments” option and follow the prompts to confirm the unenrollment.
It’s important to note that opting out of advance payments only affects eligibility for the Child Tax Credit partially. It means that the full amount owed will be received as a lump sum when filing taxes next year. Additionally, users will need to provide their bank account information if they wish to have the lump sum deposited directly into their account.
Income details are also required to determine eligibility for the Child Tax Credit. It is recommended that individuals consult with a tax professional or utilize the IRS online tool for assistance with determining their eligibility and making the best decision regarding advance payments.
4. Confirmation and Future Updates
Once a user opts out of a service or communication, they should expect a confirmation of their decision. A notification or message acknowledging the opt-out will be sent to the user to provide clarity and ensure they have been successfully removed from any communication lists.
In the event that the user’s opt-out status needs to be updated or changed in the future, they can do so by following the same opt-out process or by contacting the relevant service provider or organization. It is crucial for users to understand that opting out is a crucial right that they possess, and organizations should make the process as seamless and straightforward as possible.
Clear communication and transparency are key to ensuring individuals can manage their data and communication preferences effectively.
Managing Your Child Tax Credit Effectively
One of the first steps is to review eligibility requirements periodically. This step is essential as the IRS regularly updates eligibility criteria, and families may become eligible for the credit or be no longer qualified. Reviewing eligibility also helps in ensuring that the correct payment amount is received. Checking payment amounts is another practical tip for managing the Child Tax Credit effectively.
The credit amount could vary based on factors such as the number of children, their ages, and income levels, among other things. Therefore, it is crucial to keep track of the payment amounts to ensure that the family receives the correct amount. Adjusting the tax withholding is another step that can help manage the Child Tax Credit effectively.
Withholding too much can prevent families from getting quick access to money, while withholding too little may result in paying taxes at the end of the year. Families can adjust their tax withholding to ensure they receive the correct amount throughout the year.
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