"Child Tax Credit 2021- Opt in or Opt out?"

Under the American Rescue Plan passed in March 2021, the child tax credit was increased to up to $3600 for families with children under 6 and up to $3000 for kids ages 6 to 17. Where generally this credit is received as a tax refund or used as a tax offset with the filing of the year's tax return. The credit will be distributed monthly over 6 months beginning in July (July 15th) 2021. Because payments are being distributed halfway through the year, families will be getting the credit or payments to cover the first half of the year on their 2021 tax returns. Families that have direct deposit set up will see the money show up in their checking accounts. Those who do not have direct deposit will get payments via check or debit card. Monthly payments of up to $300 will be made for children 6 years and younger. Payments of up to $250 will be made for children 6-17. The money will be paid out on the 15th of each month unless that date falls on a weekend or holiday.

Who Qualifies?

Families with children 17 or younger, will qualify for the child credit. A full payment will be made to individuals who fall in the following income brackets:

• Individual taxpayers who make $75,000 or less

• Heads of household that make $112,500 or less

• Married or jointly filing taxpayers or widows or widowers that make $150,000 or less

Payments will be reduced by five cents for each dollar the taxpayer makes above these income thresholds. Because the child credit is refundable, taxpayers will still get the credit even if they didn’t earn any income or if their income level was too low to file taxes.

Can families opt out of the advance monthly child tax credit? Yes, families who’d rather receive the child tax credit payments in one lump sum rather than smaller payments can choose to opt out of the payments. However, they must understand they will not receive the full payment or any payment, just as in years past until they file their 2021 tax return in 2022. On July 1st, 2021, the IRS will open two online portals that is designed specifically for the new child tax credit payments. It will feature an option to opt out of receiving multiple payments this year and update any change in your situation since the filing of your 2020 tax return.

If you do not update your information or choose to opt out via the portal and you filed your taxes before the May 17th deadline, you'll automatically receive the monthly payments. Opt in v. Opt out Either way you choose to go please make sure you know the tax effect of your choice. This choice can have a varying effect on the 2021 tax return.

For example, if you have in the past relied upon this tax credit offsetting any tax liability you could have. Due to claiming exempt or having very little withheld from your earnings for federal taxes. Then you will need to consider how receiving up to $1800 of this credit up front will impact your taxes when filing next year. At AM Income Tax, we want to make sure you are well informed on tax issues that could affect your taxes. Please feel free to contact us with any questions.