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If you’re a mom or dad juggling the various expenses that come with raising your children, it might be hard to imagine passing on monthly infusions of cash. However, there’s more than meets the eye to the new Advance Child Tax Credit (ACTC) program. While the first round of payments is slated to go out to parents and guardians later this month, there’s still time to determine whether participating in the program makes sense for you and, if not, take the necessary steps to opt out of future installments. 

Let’s take a closer look at what the ACTC is and see if it’s the right fit for you. 

What is the Advance Child Tax Credit? 

Included in the American Rescue Jobs Plan passed earlier this year, the ACTC is a monthly advance payment from the IRS that is 50 percent of the estimated amount of Child Tax Credit you’d receive when you file your 2021 tax return. The first batch is slated to go out on July 15, allowing families who need the cash now to avoid waiting until next year when they file their return. Additional payments will be distributed on August 13, September 15, October 15, November 15 and December 15. 

For tax year 2021, families claiming it will receive: 

  • Up to $3,000 per qualifying child who are between the ages of 6 and 17 
  • Up to $3,600 per qualifying child who are under age 6  

The remaining half of the Child Tax Credit will be claimed on your 2021 tax return, while the maximum credit available to you depends on the amount of income you report. If the IRS has processed your 2020 tax return or 2019 tax return, your monthly payments start this month and run through the end of 2021.  

Should I unenroll from the Advance Child Tax Credit? 

You might be thinking that it makes a lot of sense to go ahead and access that cash now, right? Not necessarily. For instance, you might be in a position where you’d prefer getting a larger refund when you file your return in 2022.  

While the advance is based on your most recently filed tax return, the final amount will be determined by your 2021 tax return. This means expected or unexpected events that change your tax filing situation could very well disqualify you for the credit.  

For example, you could end up making more money this year, or not be able to claim a child as anticipated. In either of these scenarios, you may have to pay back some or all of those advance payments, and it’s quite possible that an underpayment penalty would apply. So, in either one of those scenarios, it could make more sense to decline the payments. 

How do I unenroll from the Advance Child Tax Credit? 

Even if you’ve missed the first deadline to unenroll, you still can pass on the remaining payments for 2021. You must opt out at least three days before the first Thursday of the month in which the payment is scheduled to be sent to you. It’s important to know, however, that if you’re married and file a joint tax return with your spouse, he or she will need to unenroll as well, or you’ll still receive the partial payment. 

The IRS has set up an online portal system for you and your spouse to: 

  • Check if you’re enrolled to receive advance payments 
  • Unenroll to stop receiving advance payments  
  • Provide or update your bank account information for the advance monthly payments  

In some instances, a photo ID or using the online portal’s facial recognition software may be required to prove your identity when you set up your account. You’ll be able to use the camera on your phone or computer to do so. 

Find an office near you today 

Whether you’re a parent trying to figure out if the Advance Child Tax Credit is right for you or a small business seeking help with a comprehensive tax plan, the trusted network of CPAs, enrolled agents and tax professionals at Padgett can lend a hand. Reach out to an office near you today.