The American Rescue Plan Act (ARPA), passed in March 2021, increased the child tax credit benefit for the 2021 tax year and simultaneously directed the IRS to deliver half of the amount that families are eligible for in monthly checks beginning in July. The advanced payments are worth up to $300 per month per child under age 6, and up to $250 for each child ages 6 to 17.
Typically, the child tax credit is claimed when filing your annual tax return on form 1040. The Biden administration has made it a priority to deliver relief immediately to struggling families, and the advanced child tax credit payments have been touted by the administration to help reduce child poverty.
The maximum child tax credit amount is available to individuals with adjusted gross income of $75,000 or less and married couples with adjusted gross income of $150,000 or less. Credits phase out for incomes above those thresholds. The IRS will use older (2019 or 2020 if filed) income information to process the advanced payments. As with many advanced credit schemes, the final credit that a taxpayer or couple will be eligible for will depend on their actual 2021 income. Thus, many taxpayers may find themselves in the unenviable situation of being forced to repay some or all of the advanced credit when filing their 2021 income tax returns in 2022.
The IRS has developed an online portal for opting out of the advanced child tax credit. The tool can also be used for non-filers that are otherwise eligible for the advanced payments to apply.
To opt out you will need the following:
- Either IRS username for your IRS account or an ID.me account, which can be registered upon sign up or created with a Facebook, Google, or LinkedIn login
- A photo ID copy of your passport or driver’s license
- A camera phone capable of taking a picture to be verified against the photo ID
- Your Social Security Number
Additionally, please keep in mind that for married couples, each spouse will independently need to opt out of the advanced payment program.
For those taxpayers who are certain they will not be eligible for the full credits in 2021 or do not want to deal with a potential situation of owing back a significant portion of the credit when filing their 2021 return, the use of the opt out tool is strongly encouraged.