Are You Eligible for the Advance Child Tax Credit?

Last week, the IRS started sending out monthly advance child tax credit (CTC) payments to eligible taxpayers. We wanted to update you on how this tax credit may affect you and the taxes you are responsible for in 2022.

Eligibility

Like any tax credit, your eligibility for the CTC is based on previous tax returns and various information you provide to the IRS. For the 2021 tax year, the IRS has instituted a program that will help families receive advance payments starting this summer. They will pay half of the total credit amount in advance payments beginning July 15, and you will claim the other half when you file your 2021 tax return. The IRS says to qualify for the advance payments, you must have:

• Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
• Provided your information in 2020 to receive the Economic Impact Payment using the Non-Filers: Enter Payment Info Here tool; and
• A main home in the United States for more than half the year or file a joint return with a spouse who has a main home in the United States for more than half the year; and
• A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
• Made less than certain income limits.

The IRS will use previously supplied information to automatically enroll you for advance payments, and you do not need to take additional action to receive them.

Should you accept, unenroll, or opt-out?

Since the CTC is based on your 2019 or 2020 tax return, the amount the IRS has estimated may not be accurate for your income in 2021. If your income has changed, one of your dependents has aged out, or if there is a change in custody, you may wind up receiving more money than you are owed. In this case, you would be required to pay the difference back to the IRS when you file in 2022.

There are ways to avoid this, though. The IRS has set up a handy portal for the CTC, where you can check your enrollment status, update your bank information, and unenroll in advance payments. Later this summer, you’ll also be able to update your marital status, dependents, and income. It’s important to note that if you unenroll in advance payments, you will still receive the CTC if you are eligible for it; you will just receive it in one lump sum after you file your 2021 return, rather than in monthly installments.

As always, feel free to reach out to us at SDA with any questions, and we’ll walk you through it.

-Stanley & Kelly