For those of you who have children claimed on your 2020 tax return, you have probably received a notice about the Advance Child Tax Credit Payments for 2021. What is this and how it will affect your tax outcome? Our 1099 specialists can provide the best possible help.
What is the Child Tax Credit?
The Child Tax Credit is a credit that is used to offset your taxes at the end of the year. Generally, if you have any of the Child Tax Credit left over after offsetting your tax due, it is issued to you as a refund.
What is the Advance Child Tax Credit?
The IRS is issuing out part of your Child Tax Credit early in 6 monthly payments (July – December 2021) in 2021. If you take the monthly payments, that means you will have less credit at the end of the year to offset your taxes which will result in your tax outcome being worse, and you might even end up owing taxes instead of getting a refund. If you end up receiving more of the child tax credit than you should have, you may have to pay it back. It is important to note that you have to opt out of the program if you DO NOT want to receive the advance payments.
What Do We Recommend?
We recommend that you opt out of the Advance of the Child Tax Credit unless you need the money early. If you opt out, this does not mean you will not receive that money. It just means that you are wanting to use the Child Tax Credit to offset your taxes at the end of the year and any of the Child Tax Credit left over will still be issued to you as a refund.
Child Tax Credit Update Portal
If you want to opt out of the child tax credit advance payments, you can do so by visiting the IRS Child Tax Credit Update Portal. If you do want to receive the advance of the Child Tax Credit, you can also use the portal to update your address, banking information, income, etc. If your income does change drastically, then we would recommend updating that into the Child Tax Credit Portal, so you do not receive too much of the child tax credit and have to worry about possibly paying it back.
It is important to note that the IRS will need to verify your identity so you can access your portal (i.e. a valid Driver’s License, Passport, etc…)
Questions or Concerns
Set up a meeting with one of our 1099 specialists, or email us at firstname.lastname@example.org to learn more!