Opting Out of the 2021 Advance Child Tax Credit Update
As first payments of the Advance Child Tax Credit begin and the IRS continues to provide more information, this blog post contains an update regarding opting out of the Advance Child Tax Credit. As mentioned in the prior post, one reason for opting out may be to avoid IRS overpayments that you may have to reimburse come tax time. How does this happen? Because eligibility to receive the monthly Advance Credit is based on information the IRS obtained using 2020, and in some cases, 2019, tax return information, significant changes to your tax information in 2021 could adjust the amount of the Child Tax Credit you would be entitled to receive next year.
If you will not be eligible for the Child Credit when filing your 2021 tax return, or if your eligibility will be for a smaller amount, the payments you receive now based on 2020 information may exceed what you are actually due under the credit. If you anticipate a significant increase in income, or if you were eligible to claim your child as your dependent last year but someone else will be entitled to claim them as a dependent in 2021, such as an ex-spouse, you might elect to opt-out to avoid having to reimburse the IRS for any overpayments. As mentioned in our prior post, the IRS has an online portal through which people can opt-out of the Advance Child Tax Credit. You can opt-out for each month’s credit amount if you do so within the deadline for that month. The professionals at The Center for Financial, Legal, and Tax Planning, Inc. are more than knowledgeable with regards to the Advance Child Tax Credit. Please contact us at (618) 997-3436 for more information.