Did you miss the June 28th unenrollment deadline for the advanced child tax credit payments? If you did, do not be alarmed. Social media has been buzzing lately over these advanced payments and what they could mean for your overall tax picture. The advanced child tax credit law was a piece of the latest 1.9 trillion dollar covid relief package that the Biden administration passed back in March. This law expands on the previous credit and allows qualifying parents to receive up to a $3,600 credit for children under the age of 6 and $3,000 for children ages 6 to 17. The larger change, however, is that starting July 15th this credit will be distributed to qualifying families in the form of monthly payments. So, these families will begin receiving half of their 2021 credit from July to December as direct deposits into their bank accounts, similar to the distribution of stimulus checks. That is up to $300 per child under the age of 6 and $250 per child 6-17 years old.
For many families that have struggled throughout the pandemic this comes as a relief and is extremely beneficial. For others, these monthly payments may cause a tax nightmare come April 2022. The reason? The qualification for the child tax credit is based on your most recent tax return filed with the IRS. For most this would be their 2020 return, and we all know that 2020 was not exactly a normal year. So if you or your spouse were laid off in 2020 or had a significantly lower salary in 2020 compared to what you are earning now in 2021, you may be receiving a larger tax credit and subsequent payments than IRS rules allow. As a result, come tax season you may not only be paying additional regular taxes but also paying back the payments you have been receiving monthly.
If you have had an increase in income in 2021 or you look forward to receiving a large tax refund every year or even if you are unsure and would rather wait until you file your return, you may want to unenroll your eligibility for these payments. At the end of June, social media was scaring people into believing if they did not unenroll before June 28th then they would be unable to in the future. However, the June date was just to unenroll before the first round of payments slated for July 15th. The following is the full schedule for when you must unenroll to avoid receiving an advanced payment in future months.
You can unenroll by signing in to the IRS website under your existing Username or by creating an ID.me account. Once you unenroll you do not need to unenroll every month although if you are filing jointly, you and your spouse both need to unenroll in order to avoid the advanced payments. In order to fully understand the impact of this advanced tax credit and whether or not you should unenroll, you should speak to your financial advisor or a tax professional. To learn more and speak to one of us at Joule, request a meeting HERE.