The American Rescue Plan not only expanded the amount of the Child Tax Credit, but also created a newly advanceable monthly payment that commenced on July 15th and is expected to continue monthly for the remainder of the 2021 tax year.
The advance monthly payments are new and were rolled out rather quickly, so additional guidance has been released. The IRS recently launched a Child Tax Credit Update Portal (CTC UP), which allows taxpayers to update their individual information to reflect any new changes that might impact their 2021 Child Tax Credit amount, such as:
- Mailing address
- Bank account information
- Change in filing status
- Add/subtract qualifying children
- Report a change in your income
If your income for 2021 will be significantly different from the income shown on your 2020 tax return, the IRS now has the ability to adjust your estimated 2021 Child Tax Credit and therefore adjust the amount of the monthly advance payments yet to be paid.
If you do not receive advance Child Tax Credit payments for a qualifying child that you will claim in 2021, you may claim the full amount of your allowable Child Tax Credit when you file your 2021 tax return.
Taxpayers also have the option to opt-out of receiving advance payments through the CTC UP. If you are married, both the taxpayer and spouse will each need to unenroll. As a result, your future payments will be reduced to take into account your unenrollment or removal of a qualifying child. You may choose to unenroll for several reasons, including if you expect the amount of tax you will owe to be greater than your expected refund when you file your 2021 tax return. If no action is taken, you may need to repay to the IRS the amount of the advance payments that you received.
It is important to note that in January 2022, the IRS will send taxpayers a letter to provide the total amount of advance Child Tax Credit payments that were disbursed to you during 2021. Please keep this IRS letter regarding your advance Child Tax Credit payments with your permanent tax records and provide a copy to Tronconi Segarra & Associates with your 2021 Tax Organizer information, as it will be needed for proper completion of your 2021 federal income tax return.
For more information, contact Vedha Krishnamoorthy, CPA, FCA, Manager, Small Business Department at VKrishna@tsacpa.com or 716.633.1373.