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Advance Child Tax Credit Payments

Kort Redick, CPA & Leanne Tarleton

Beginning on July 15, the IRS will send qualifying individuals and families advance Child Tax Credit payments. The IRS will pay half of the total credit amount for 2021 in advance, and payments from the IRS will be sent to qualifying taxpayers monthly. Qualifying taxpayers will claim the remaining portion of the Child Tax Credit when they file their 2021 income tax return. Those who qualify will receive the advance payments automatically unless they choose to opt out. Here is the link (https://www.irs.gov/credits-deductions/child-tax-credit-update-portal) to opt out of receiving the advance Child Tax Credit payments.
How do I qualify?
An individual will qualify for the Child Tax Credit (CTC) if they have a child under 18 years old whom they may claim as a dependent. Additionally, you, or your spouse if filing a joint return, must have their main home located in the United States for over half the year. For more information on qualification requirements visit the IRS website.
Why opt out?
We advise taxpayers to be wary about accepting these advance payments. The advance Child Tax Credit payments are different from the stimulus payments. The stimulus payments were sent based on the income claimed on the taxpayer’s 2019 tax return. Taxpayers did not have to pay back any stimulus payments they received, even if their income increased in 2020. Unlike the stimulus payments, taxpayers will have to pay back the advance payments if they no longer qualify for the CTC based on their 2021 tax return.  
Taxpayers may have to pay these advance payments back if they typically use this credit to cover part of their tax liability. Many taxpayers rely on the CTC to cover their tax liability, and therefore, do not make estimated tax payments. If the taxpayer decides to opt out of the advance payments, they can use the total sum of the tax credit to offset their 2021 taxes due at the end of the year.
Taxpayers may also wish to opt out if their tax situation, dependents, or income has changed to avoid paying a larger amount when filing their 2021 tax return.