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Can You Opt Out Of The Child Tax Credit

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Changes To The Child Tax Credit For 2021

VERIFY: Yes, you can opt out of the child-tax credit

For 2020, the child tax credit was worth $2,000 per child 16 years old or younger. It also began to disappear as income rose above $400,000 on joint returns and above $200,000 on single and head-of-household returns. For some lower-income taxpayers, the credit was partially “refundable” if they had earned income of at least $2,500. That means the IRS will issue you a refund check for the refundable amount if the credit is worth more than your income tax liability.

The American Rescue Plan, which was enacted in March, provided a significant expansion of the credit for the 2021 tax year . For example, the credit amount jumped from $2,000 to $3,000 for children 17 years of age or younger and to $3,600 for children 5 years old and younger. The extra amount is reduced potentially to zero for families with higher incomes, though. For people filing their tax return as a single person, the extra amount starts to phase-out if their adjusted gross income is above $75,000. The phase-out begins at $112,500 for head-of-household filers and $150,000 for married couples filing a joint return. The credit amount is further reduced under the pre-existing $200,000/$400,000 phase-out rules. The child tax credit was also made fully refundable for the 2021 tax year , and the $2,500-of-earned-income required was dropped for the year.

Child Tax Credit: Why You May Want To Opt Out Of Monthly Payments This Week

by: Talia Naquin, WJW, Nexstar Media Wire

Money from the child tax credit advance could be a lifeline for many.

The first of six monthly child tax credit payments began July 15.

Parents should expect $300 a month for kids under the age of 6 and $250 a month for children between 6 and 17.

Those payments will continue until Dec. 15. Then in April 2022, there will be a lump sum distributed up to $1800 per child.

The next check is scheduled to be disbursed on Aug. 13.

However, families may want to opt out, and they can do so this week.

Qualifying families have to alert the IRS and confirm they want to unenroll from monthly payments, and instead get it all at once next year.

The payments differ from stimulus checks in that they are not completely new funds, but rather an advanced payment on the Child Tax Credit parents already were deducting from their taxes at filing time.

The total value of the credit was beefed up for 2021 as part of the Biden administrations American Rescue Plan. This year, parents are getting half of the funds in advance and the rest when filing is done next spring. That means the monthly check payments will run out at the start of 2022.

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Who Might Want To Opt

Not everyone will want to receive half their child tax credit in monthly payments this year. For example, if you don’t need the money this year, you may be better off taking the full credit on your 2021 tax return to lower next year’s tax bill or increase the amount of your tax refund.

If you don’t opt-out, you might have to pay back some of the advance payments, too. In most cases, the monthly payments will be based on your 2019 or 2020 tax return. But the credit amount will ultimately be based on the information reported on your 2021 return. If your circumstances change in 2021, you could end up being paid too much in monthly payments. This can happen, for example, if you earn more money in 2021 or you can no longer claim a child as a dependent this year .

There is a “safe harbor” rule for lower-income families. Parents with 2021 modified adjusted gross income no greater than $40,000 , $50,000 , or$60,000 won’t have to repay any child tax credit overpayments. However, families with a modified AGI from $40,000 to $80,000 , $50,000 to $100,000 , or $60,000 to $120,000 will need to repay a portion of any overpayment. Parents with modified AGIs above those amounts will have to pay back the entire overpayment.

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Will There Be Monthly Child Tax Credit Payments In 2022

As it stands right now, the monthly child tax credit payments will end this year. However, President Biden and many Democrats in Congress want to continue the payments beyond 2021. Under the presidents plan, they would be extended through 2025, along with the other credit enhancements that apply this year . Its too early to tell if that will happen, but its certainly possible while Democrats control both the White House and Congress.

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If Your Income Rose Or Youre A Higher Earner

Should You Opt Out of the Child Tax Credit?

Since the advance payments are based on the income reported on your 2020 tax return , households with higher earnings in 2021 may be eligible for a smaller portion of the credit, which means they could be receiving too much in advance.

Households that have taken retirement distributions or collected any other type of unearned but taxable income will need to take that into consideration as well, accountants said.

Higher-income taxpayers may also want to consider opting out, tax experts said, because they are entitled to a smaller version of the child tax credit, or the $2,000 per child available under prior law . If taxpayers didnt factor that into their tax withholdings, they may end up with a lower refund or a higher tax liability come tax season.

You can get the full credit if your modified adjusted gross income is $75,000 or less for single filers, $150,000 or less for married couples filing a joint tax return and $112,500 or less for head of household filers . The credit begins to decline above those thresholds in two different steps until it phases out completely.

You can check your eligibility for the credit using the I.R.S.s Child Tax Credit Eligibility Assistant.

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Child Tax Credit: How To Opt Out Of Monthly Payments

Most parents will receive their next Child Tax Credit payment on . The monthly checks of up to $300 per child will continue through the end of 2021. And up to $1,800 more per child will arrive at tax time next year. The amount of each parent’s total deposit depends on their annual income, the number of children and the ages of those children. When added together, the money may add up to more than any of the first three stimulus checks. But what if a parent wants to opt out of these advance payments in favor of a one-time payment?

When Will You Receive The Credit

Eligible families will receive half of their credit in the form of monthly payments of up to $250 per school-age child and up to $300 per child under 6 from July through December 2021.

The other half will be paid out when they file their 2021 taxes. The credit is income-based and starts to phase out for individuals earning more than $75,000 a year or $150,000 for those married filing jointly.

Most eligible families wont need to do anything to receive the payments, but you should understand the implications and why advance payments might not make sense for your household even if you qualify.

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Can I Get More Of The Childctc In A Lump Sum When I File My 2021 Taxes Instead Of Getting Half Of It In Advance Monthly Payments

Yes, you can opt out of monthly payments for any reason. To opt-out of the monthly payments, or unenroll, you can go to the IRS Child Tax Credit Update Portal. If you do choose not to receive any more monthly payments, youll get any remaining Child Tax Credit as a lump sum next year when you file your tax return.

Your Income Has Increased

Child Tax Credit: How Do You Opt Out Of Advance Monthly Payments?

Your child tax credit payments are an advance payout of the 2021 child tax credit. The IRS will use your 2020 or 2019 tax return or information you provided in the nonfiler toolâwhich allows you to register for the monthly child tax credit payments if you are not required to file a tax returnâto determine your eligibility.

However, when you file your 2021 tax return next year, you may no longer qualify for the credit if your income is too high. If you expect to earn significantly more in 2021 than you did in 2020, you should consider opting out. If you do not opt out, you will have to report the excess child tax credit amount received on your tax return, which may reduce your refund or increase the amount of taxes you owe.

Typically, you qualify for the payment if your modified adjusted gross is $75,000 for single filers and $150,000 for those who are married filing jointly. If your MAGI is more than these thresholds, the IRS will phase out the child tax credit payment in two steps.

Once you reach the income threshold, the first step reduces your child tax credit from $3,600 per child under the age of 6 to an amount no lower than $2,000. It does so by subtracting $50 for every $1,000 earned above the threshold.

Next, if your MAGI exceeds $200,000 for single filers , the credit is reduced by $50 for every $1,000 earned. You may not be eligible for any credit at all.

Your child must also meet certain qualifications to be eligible for the monthly payments, including:

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Divorced Or Separated Parents

Families where parents are separated or divorced and share custody of children may want to opt out of the advanced payments to make their tax filing easier. Many parents alternate who claims the children, and thus who would receive the credit, on a yearly basis.

Since the IRS is going off of mostly 2020 tax information, money would be sent to the parent who claimed the children in that year. But that might not be the parent whose turn it is to claim children in 2021.

“Children of divorced parents would probably do better to opt out, just to keep the peace,” said Trenda Hackett, a CPA and technical tax editor at Thomson Reuters Tax Accounting. It would also protect parents from potentially having to pay the credit back if it wasn’t their year to claim it.

Do Advance Payments Count As Income Do I Need To Report It On My Tax Return

No. Advance payments are not income and do not need to be reported as income on your tax return. These payments were early payments of your 2021 Child Tax Credit, which you would normally claim as part of your tax refund when you file your tax return. Even though the advance payments dont need to be reported on your tax return, in January 2022, the IRS sent you Letter 6419 that tells you the total amount of advance payments sent to you in 2021. Please keep this letter for your tax records. On your 2021 tax return , you may need to refer to this notice to claim your remaining CTC. You can either use Letter 6419 or your IRS account. Learn more about Letter 6419.

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The Salary Limits On Child Tax Credits

Households with adjusted gross income at or below $40,000 on a single tax return, $50,000 on a head-of-household return, and $60,000 on a joint return won’t have to repay any overpayments on the Child Tax Credit that they receive. However, those households making at or above $80,000, $100,000, and $120,000, respectively, will need to repay the entire amount of overpayment. For households with earnings in between these thresholds, they will need to repay a portion of any overpayments received.

Why Would You Opt Out Of Payments

Child Tax Credit Opt Out

There are two common reasons why tax payers may choose to opt out of payments.

First, you should note that taking these payments essentially decreases the amount of money that you can deduct on your 2022 tax return . So you may prefer to opt out of payments to get any available money from your tax return refunded as a lump sum, just like in a normal year. For some, this is a financial planning preference.

Second, if your income increased substantially in 2022 when compared with 2021, you may get more in advance payments than you are actually eligible for. This will result in you owing taxes to the federal government when you file the following year. So opting out of the payments takes away the risk.

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Your Dependent Status Will Change Next Year

If you will not qualify for the child tax credit in tax season 2022 due to dependent changes, it’s best to avoid the advance payment, or you will most likely have to pay that amount back.

“The IRS may require you to repay some or all of the monthly child tax credit payments…if your dependent status changes,” says Kemberley Washington, CPA and tax analyst with Forbes Advisor. If you have kids that will no longer qualify by the time tax season rolls around next year , choosing not to receive the CTC payments will save you money. However, there is a full repayment protection safeguard the IRS has in place that exempts families who earn under a certain income from having to pay back the credit, says Washington.

Logan advises that most divorced couples who alternate claiming a child each year should opt out of the child tax credit as well. If you claimed your child last year, but will not this year, then you would have to pay all of the credit backunless you earn less than $40,000.

For those who coparent, the person who claims the child will qualify for the payment, as long as the child also meets qualifications .

To opt out of the CTC, go to the IRS child tax credit update portal. If you’re filing jointly with your spouse and would like to opt out of the CTC, both of you must unenroll separately. “If you do not, the spouse who did not unenroll will receive half of the qualified payment,” says Washington.

What If I Filed A 2020 Tax Return But The Irs Still Hasnt Processed My 2020 Tax Return

The IRS used your 2019 tax return to determine if you were eligible for advance payments and if you were, the amount you qualified for. Once your 2020 tax return wasprocessed, your payment amount may have changed.

Because of the IRS delay on processing tax returns, your advance payments may not have been adjusted in time. You will need to file a 2021 tax return to receive any missing money that you are owed.

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When To Opt Out Of Advanced Child Tax Credit Payments

Timing is everything when it comes to finances and organizing your tax burden.

When it comes to monthly opt-out deadlines, if you want to opt out of an advanced child tax credit payment one particular month, you need to un-enroll by at least 3 days prior to the 1st Thursday of the month in which the payment is scheduled to arrive in your account.

And you will have until 23.59 Eastern Time.

You Are Expecting Your Income To Increase This Year

Should you opt out of monthly child tax credit payment?

If you or your spouse are expecting a significant change to your incomes this year that would no longer qualify you for the CTC, it would be wise to opt out. This is because you will likely have to pay back any overpaid amount, says Beth Logan, EA at Kozlog Tax Advisers. So if your adjusted gross income in 2020 was less than $75,000 or $150,000 and you expect your income this year to exceed that, you’re better off opting out. The same applies if your income goes from below $200,000 to above, as benefits decrease at this income level too.

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How To Make Changes And Opt Out

To opt out of receiving the payments, taxpayers should visit the Child Tax Credit Update Portal. If you dont already have an account, youll need to create one. And if youre married and file a joint return, both spouses will need to create accounts and opt out spouses who dont opt out will continue to receive half of the advance monthly payment.

Besides stopping the checks, the portal can be used to check the status of your payments change the bank account receiving them or to switch your payments to direct deposit from paper checks.

But you cant make changes that could result in a larger monthly payment like adding a child who was born or adopted this year just yet. The I.R.S. said it has plans to improve the tool later this year and allow taxpayers to add children who are newly eligible , as well as report changes in their marital status, income and mailing addresses. But those updates arent imminent.

The I.R.S. did say it would automatically make changes for children who were aging out of the credit. For example, the agency said it wont include a child who turns 18 in 2021 in your payment. Similarly, if a child turns 6 this year, the I.R.S. will adjust the payment to the lower amount for older children.

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