Families started to receive the advanced payments of the enhanced Child Tax Credit (CTC) on July 15th. However, families may want to reconsider taking the remaining advanced payments. These payments are advance payments on the tax credit you would normally receive when you file your income tax return. Reasons you may want to opt out of the advance payments:

Owing Money:
Do you generally owe the IRS money when you file your taxes? Are you a self-employed parent who normally makes quarterly estimated payments? You may want to offset the amounts you owe by saving the full credit for when you file your income tax return. The credit protects you from owing a large, unexpected amount.

Lump Sum Spending:
Families may want to get the cash all at once instead of stretching it out and receiving smaller amounts each month. Many families look forward to getting their tax refund and may use this money for a big purchase.

Divorced/Separated Parents:
Separated or divorced parents that share custody of children may choose to opt out of the advanced payments because it will make tax filing easier. Many divorced parents alternate who is allowed to claim the children on their tax return, and thus who receives the credit. The IRS will use the tax information from 2020 filings. If Parent A claims the child/children in 2020, but Parent B is entitled to claim them in 2021, Parent A will receive the advanced credit payment and will be required to repay it on their 2021 income tax return.

Tax Planning:
Receiving the monthly payments may interfere with your family’s tax planning. Families may have various kinds of income coming in from wages, capital gains, and rental properties. This type of income does not have income tax withholding associated with it. If they suddenly receive money during the year, this may create a bit of a discrepancy when they file their tax returns. They also may prefer to use the credit when they file to offset any taxes they may owe.

On the Child Tax Credit Update Portal, the IRS allows users to unenroll from advance payments in favor of a one-time credit when filing their 2021 taxes. The deadline to unenroll for payments is monthly:

Payment MonthDeadline to Update InformationPayment Date
September8/30/20219/15/2021
October10/4/202110/15/2021
November11/1/202111/15/2021
December11/26/202112/15/2021

Families can pause the payments through the IRS online portal: Child Tax Credit Update Portal | Internal Revenue Service (irs.gov)
If you are considering opting out of the monthly Child Tax Credits, please contact our professionals at The Innovative CPA Group who can guide you through the process.

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