Wolters Kluwer Tax & Accounting (AEX:WKL):

What: Starting on July 15, 2021, many families will begin seeing deposits in their bank accounts from the Internal Revenue Service (IRS) and may not know why. Other families who should be receiving these deposits will not receive them and also may not know why. Finally, some families who receive the deposits may want to take steps to stop them. These deposits all stem from a provision in the American Rescue Plan Act enacted earlier this year that increased the Child Tax Credit and provided for an advance payment of the credit between July and December 2021.

Why: Several recent polls indicate that most Americans are not aware of these advance payments. The Administration and the IRS are starting to run publicity campaigns to increase awareness around the Advance Child Tax Credit and the IRS has established portals to help families receive the advance payments in the correct amounts or to opt out of receiving them. While some taxpayers will receive the correct advance payments without taking any action, many others will have to take action to receive the correct advance payments or to stop them altogether.

  • The advance payments are up to $300 per month for children under age 6 and $250 per month for children age 6 through 17; payments will be issued from July 15 through December 15, 2021
  • Eligibility for the Child Tax Credit is subject to income phase-outs
  • The IRS will base the advance payments on information in the 2020 tax return if it’s available or, if not available, on information from the 2019 tax return if that’s available
  • For families who are not required to file tax returns, the IRS has developed a Non-filer Tool to provide the IRS with information to pay the advance payments. The IRS will also use information from the non-filer tools submitted for the Economic Impact Payments
  • The IRS has developed a Child Tax Credit Eligibility Assistant to help families determine if they are eligible for the credit
  • The IRS will issue the advance payments by direct deposit or check. For direct deposit, the IRS will use bank account information on file. The IRS has also developed a Child Tax Credit Update Portal for taxpayers to update bank account information so they can receive the advance payments by direct deposit
  • The IRS expects to expand the Child Tax Credit Update Portal in the near future to permit checking on the status of advance payments or to provide the IRS with updated information, such as the birth of a child, a change in filing status, or a change in income that could affect taxpayer eligibility
  • Unlike the Economic Impact Payments sent out by the IRS in 2020 and early 2021, if the advance Child Tax Credit payments exceed the Child Tax Credit to which the taxpayer is entitled on the 2021 tax return, the advance payments must be repaid when the 2021 tax return is filed
  • Some lower income taxpayers may be eligible for a safe harbor to reduce or eliminate the amount that must be repaid
  • The repayment issue might cause some taxpayers to opt out of receiving the advance payments
  • Taxpayers may consider opting out if, for example, they know their 2021 income will be too high to be eligible or if someone else can claim the child as a dependent on the 2021 tax return
  • Taxpayers may opt out of the advance payments on the Child Tax Credit Update Portal
  • The IRS also plans to send letters to taxpayers confirming eligibility, the amount to which they are eligible, and the date that their advance payments will commence
  • It is already too late to opt out of the July 15 advance payment. The deadline to opt out of the next advance payment on August 13 is no later than August 2, 2021

Who: Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, can help discuss the Child Tax Credit, the advance payments, and what families should do to receive the correct advance payments or to opt out from receiving the payments altogether.

PLEASE NOTE: The content of this article is designed to provide accurate and authoritative information in regard to the subject matter covered. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering legal, accounting, or other professional services.

Contact: To arrange an interview with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact Bart Lipinski.