The IRS has created an online tool to allow taxpayers to unenroll from receiving advance payments of the Child Tax Credit.
The American Rescue Plan Act of 2021 requires the IRS to establish a program for making periodic payments to taxpayers equal to 50% of the amount of the Child Tax Credit that each taxpayer is estimated to qualify for in 2021. The IRS uses information from the taxpayer’s 2019 or 2020 tax return to determine how much a taxpayer is estimated to qualify for in 2021. 50% of that amount is then paid to taxpayers on a monthly basis starting July 15, 2021. The total paid as advance payments is then reconciled when the taxpayer files his or her 2021 tax return. The credit claimed on the return is reduced by any advance payments received. If the advance payments exceed the total credit allowed, the excess is treated as an increase in tax liability. However, this excess amount may be reduced by a safe harbor amount if the taxpayer’s AGI for 2021 does not exceed a modified AGI threshold amount.
Example: Chris and Larry have one daughter who was a qualified child for purposes of the Child Tax Credit in 2019 and 2020. She has since moved out of the house. Chris and Larry will not qualify for a Child Tax Credit when they file their 2021 tax return. The IRS has no way to know based on information from their 2020 tax return that they no longer qualify for the credit. To avoid having to pay back the advance payments when filing their 2021 tax return, Chris and Larry use the online tool to opt out of receiving advance Child Tax Credit payments.