The IRS has sent letters to certain eligible taxpayers regarding changes to the Child Tax Credit (CTC). Rather than take the credit at the end of the year, the IRS is offering to send a portion of the credit directly to you each month unless you opt out.
As a firm, we recommend that you consider opting out of the advanced payments.
Historically, the Child Tax Credit was claimed when filing your tax return and consisted of $2,000 per qualifying child (under age 17). However, under the new legislation the IRS will be increasing the amount to $3,000 (children under age 18) and $3,600 (children under age 6).
In years past your tax due would have been decreased by the Child Tax Credit, likely resulting in a refund or small payment. By receiving these payments throughout the year, you will now be receiving the benefit of the credit on a monthly basis, taking away the tax savings when filing your tax return. Without an increase in your withholding from your employer, your 2021 tax return could potentially result in a significant balance due. The simplest and most effective way to make this correction is to opt out of the monthly advance payments and continue using the credit at the end of the year when filing your return.
In the meantime, you should receive a second letter from the IRS with detailed instructions for how to opt out. This option to opt out of the advance Child Tax Credit payments will be offered online by the IRS, likely at the end of June/early July.
More information about the advance payments and opting out can be found by visiting: https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.
If you have any questions please contact your Rudler, PSC advisor at 859-331-1717.
RUDLER, PSC CPAs and Business Advisors
This e-Tip is presented by Brad Price, CPA.
If you would like to discuss your particular situation, contact Brad at 859-331-1717.
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