The American Rescue plan recently passed by congress has one provision that will affect anyone who has a child. The child tax credit was raised and is now not only refundable, but you can also get the advanced payments.

If you have a child who is between 0 and 5 as of 12/31/2021 the child tax credit rose from $2,000 to $3,600 and for children between 6 and 17, the credit rose from $2,000 to $3,000. Why is that age important. If your child is currently 5 but will have their 6th birthday before the end of the year you will not be eligible for the extra $600 for that child; if they are currently 16 but will turn 17 before the end of the year you will not receive the child tax credit at all for that child.

Keep in mind there are other restrictions on this such as your income must be below $75K if you are single or $150K for married filing joint. If you are above that income, for every $1000 over the credit reduces by $50. The income threshold applies no matter how many children you have.

In addition, from July through December you can receive up to half of the credit as an advance. If you have already filed your 2020 return this will be based on that return; if not it will be based on your 2019 tax return.

The IRS has set up a special portal that will allow you to add or subtract children if your situation has changed since filing your last return. This would include the birth or death of a child or if you and an ex-spouse alternate who takes the children on their tax return each year. You can also change your bank information or opt-out completely to receive the advanced payments. Opting out does not mean you will not get the credit at all – it just means that you will either reduce your tax obligation for 2020 or receive it as a refund when you file your taxes.

This is the big question – do you take the credit or not. Well, that is going to depend on your tax situation. Here are my suggestions, however, your tax situation may have changed significantly from 2020 so we may need to do a full tax estimate to determine if you should take the advance.

  • If you make over $150K for a married couple or $75K if you are single, then opt-out as fast as possible – They have not said if you would have to pay back any advance you were not eligible for.
  • If you owed taxes in 2020 then opt out – this will lower how much you need to make in estimated tax payments.
  • If you got a refund more than $2,000 for 2020 then go ahead and take the advance.
  • Keep in mind you can also split this up – receive it for July and August then opt-out for September and October then get it again for November and December making Christmas much easier on your budget. However, if you take this strategy make sure you put reminders in your calendar to change it otherwise you will forget and then the strategy does not work.

To change your opt-in information go to the Child Tax Credit Update Portal. To use this portal you must first verify your identity and get a username and password to get in – the process to get this id is that you first click on the child tax credit update portal, then click on Manage Advance Payments. You then need to click on sign in with This is a secure identification site and you will need a picture ID to complete the procedure. Do not use the sign-in with Facebook, Google, or LinkedIn (this is to help you protect your identity)– instead, create a new account.  You will also need either a scanner, webcam or you can also create this account from your phone allowing you to use the camera on your phone to take the picture of your ID.

Alternatively, you should get a letter from the IRS telling you how much of an advance you will be getting. On that letter is a phone number you can call to change your information via phone. Be extremely cautious with these letters. Make sure you shred them or put them in a safe location.

If your tax situation changed over the last six months or you would like us to do a full evaluation and tax plan for you, please schedule an appointment with us by clicking this link.