In our July article, we talked about the basics of the advanced child tax credit program and how it works. Since we’re well into this process with October payments going out last week, we thought it was time for a quick update on what’s going on with these payments and how they may impact your tax situation.
We’ll put this up-front: While getting money deposited automatically into your checking account may seem like a good thing, your best bet may be to opt out of these payments. They could cause trouble down the road.
A Brief Refresher
First, a quick recap of what the advanced child tax credit is. The advanced child tax credit program is designed to put more money in the pockets of families for immediate use on things like groceries, daycare, and clothing. Families who would ordinarily claim the child tax credit on their income tax returns next year are receiving half this credit in installments that started in July and run through December of this year. The remainder of the credit will be returned when they file their 2021 tax return next spring.
The Nitty Gritty
The IRS determines how much each family receives based on the number and ages of their children on December 31, 2021. For each qualifying child 5 or younger, up to $1,800 (half the total child tax credit) will be paid this year in six payments. For each child between 6 and 17, the family receives up to $1,500 (half the total credit) over the same period. Dependents 18 and older may also qualify but with stipulations.
While this seems straightforward, there are also income limits on how much each family receives. Higher-income earners qualify for less. This means a job change could impact the amount you’re eligible for. Refer to the IRS website for more information or drop in and see us at Adams Accounting Solutions.
Tax Implications
Next year when you file your taxes, you’ll need to know how much you received in advance payments and compare that with the amount you’re eligible to claim. If you’ve received more than you should have — the IRS is basing payments on 2019 and 2020 tax returns — you’ll have to pay back the excess. In some cases, both parents have received advanced child tax credit payments for an eligible dependent, even though only one parent is allowed to take the deduction.
To avoid situations like this, tax experts recommend keeping your records updated on the IRS Child Tax Credit Update Portal. This is also where you can unenroll if you don’t meet the income or eligibility criteria for receiving these payments or if you’d rather do it the old-fashioned way, waiting to claim the child tax credit until you file your taxes next year.
Call Adams Accounting Solutions for Answers
There are many other issues with this program. Some taxpayers who should be receiving these checks have not gotten them yet; others have received checks for dependents who are long grown and out of the house. Still others are getting the wrong amount.
If you have questions about the advanced child tax credit program, give us a call. It’s our business to stay on top of issues like this. Adams Accounting Solutions can help you work through the confusion to obtain the best results possible at tax time. Call today for an appointment!
