The American Rescue Plan Act of 2021 increased the Child Tax Credit in 2021 for taxpayers whose income falls under a qualifying cutoff. The implementation calls for the IRS to send out monthly direct deposits/checks in advance so that you don’t have to adjust your withholding or wait until you file your tax return to get the money.
Because the IRS doesn’t know how much income you’ll have in 2021, they only use your income from the previous year to calculate your monthly payments. When you file your tax return, you re-calculate your child tax credit and you reconcile between what you should receive and what you actually received from the monthly payments.
The IRS already sent letters to people to notify them of the upcoming payments, which are scheduled to start on July 15. If you received the letter but you don’t think you will qualify for the child tax credit in 2021, the IRS provides an opt-out tool for you to tell them not to send the monthly payments. If you fall into this situation because you expect your 2021 income to be higher, you may be tempted to opt-out. Don’t do it.
I made this mistake when I enrolled in ACA health insurance for 2020. The ACA health insurance is set up similarly to the advance child tax credit in that the government can pay a subsidy to the insurance company in advance and you’ll reconcile on your tax return between what they paid during the year and what your income ends up qualifying for.
I refused the advance subsidy in 2020 thinking that I may not qualify for it in the end, and if I did qualify, I would just get it at tax time the following year. That refusal made me miss out on over $8,000 worth of tax credit when a new law enacted in 2021 made everyone keep the advance subsidy received in 2020 whether their income qualified for it or not. I had nothing to keep because I refused the advance subsidy.
Although right now there’s no law that says you’ll get to keep any advance credit that you don’t qualify for, you never know what will happen in the future. If you accept the advance payments, the worst case is that you’ll have to pay it all back, but you aren’t out anything because you already got the money in advance. If you opt-out of the advance payments and the government becomes extra generous, you’ll totally miss out on the generosity.
Most people will simply accept the advance payments. They are the mainstream. There’s safety in the mainstream. When the mainstream wins, you win. The mainstream won’t carry you if you try to be clever and step out of the mainstream. Don’t make the mistake I made in 2020. Go with the mainstream.
Last but not least, it isn’t easy to opt-out anyway. News reports said the opt-out tool requires hoops of ID verification. You have to verify your mobile phone number but that often doesn’t work. You have to upload a photo of your driver’s license but that often doesn’t work either. And if you’re married filing jointly, each of you has to go through the process separately. The easiest thing to do is simply not to go out of your way to opt-out. Do nothing. Accept the money. If it means you have to pay it back next year when you file your tax return, so be it.
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always_gone says
Government “generosity” = Printing or Taxing.
A Nonee Mouse says
Yes, but that doesn’t change anything Harry wrote here.
Frugal Professor says
Thanks for sharing your thoughts. I agree that doing nothing is optimal.
Jane J says
We may not qualify for the extra Child Tax Credit on our 2021 taxes but I am doing as you say and not opting out. I have calculated that we will get $250 for 6 months = $1500 and as the regular CTC is $2000, and we’ll still qualify for that (AGI < $400k) then we will not be 'owing' anything. Better to have that money early – why not?
Dave Riley says
Opting out is to difficult. The government always never thinks anything out. People should have to opt in if they want it. This was a stupid idea anyway,and there will be repercussions from it. They should have just left it alone and just have the extra credit on next years taxes. I wanted to opt out, but too difficult and monotonous. And I’m sure others probably feel the same way.
Pearson says
After uploading my drivers license, ID.me asked for a video selfie.
No thanks.
Unemployed says
Demarcates figure this one out! Since the pandemic begun what if someone hasn’t had a job filed taxes for 2019 and received all stimulus checks and will receive the Advance Child Tax Credit Checks. Without a job they will not be required to file taxes for 2021 and will they have to pay the Advance Child Tax Credit BACK TO THE IRS!
Harry Sit says
You can always file a tax return even when you’re not required to do so. File a tax return and make the question moot.
Avriey says
The misinformation is so unreal and people are believing this! It IS EASY to OPT-OUT. You don’t have to upload any documents. The tool is found on IRS.GOV, just follow the link and simply click the options. Yes you do have to verify your identity as any tool you would use for anything, your information is always needed. Opting out doesn’t mean you’re missing anything. If you figured that the payments are less than what you’d expect, don’t accept. You will have to deduct what you’ve already received. Just like folks who received the stimulus check, filed for 2020 and claimed they never received it so now they have to pay it back. “Advanced “ payments is like a loan it’s not free, it’s not a grant, it’s not like the stimulus checks. Why settle for less just because the “government “ is telling you about qualifying but you don’t know if you’ll break even with the IRS? You won’t know until you file and we all know if you’re not truthful, you’ll be penalized. If you receive the payments, you will have to deduct and not use as a credit. Just because this Author missed on credits applied for Healthcare doesn’t mean their situation is similar to the advanced child tax credit. The Author wouldn’t have received payments but rather have deductions when filing. This article is one of many on the internet that is trying to persuade folks to not “opt-out” when in fact you MIGHT be creating for folks to owe in the end. You think anything is going to change about NOT paying back you’re sadly mistaken. Advanced Child Tax Credit should say enough and please read & understand on the IRS website
Boesy Pearson says
Hard to opt out. I tried.
Too much hassle.
Doug says
Who cares if you have to pay it back or not? I’ll stuff it into savings, earn interest in it until i need to pay it back. No skin off my back if they want to do stupid stuff like this. Refusing it is silly unless you know you’re going to spend it on things you shouldn’t.
John says
I live overseas and am trying to opt out. Basically impossible. Have to download an app to a “smart phone” (which I don’t have). The other option is to get a number sent to my phone (but the website only takes phone numbers in American phone number format).
The bottom line is the lord’s want control over their serfs. They will probably let the serfs get “extra money” for a couple of years to hook them on it. After that, they will start expecting the serfs to pay back (with interest). At that point, the amount will be more than most people can afford. The lord’s will then demand payment plans that will keep even more people permanently in debt (under their control).
Welcome to neo- feudalism (better known as communism). The lord’s have undone the constitution and the American people have lost