Still Confused About the Advanced Child Tax Credit? Here are some last minute tips
Excitement is building this week with the launch of the new Advanced Child Tax Credit. Yet as the July 15 deployment approaches, there are still taxpayers who are unsure how this new program will affect them.
“The highly anticipated child tax credit payments that will be released this week, while certainly welcomed, are still largely misunderstood by most parents. Our research shows that almost half of eligible consumers said they did not know if they were eligible for payments and an additional 25% did not know how to access them, ”said Anand Talwar, Head of Deposits and Strategy of consumers for Ally Bank.
No wonder there is confusion as it is not common for taxpayers to receive monthly payments from the government just for having children. Yet that is what is about to happen across the country. For children 5 and under, the credit is $ 3,600. For children aged 6 to 17, the payment is $ 3,000. The first half of the credit will be paid monthly. This means that for a family of four with children aged 4 and 8, parents will receive $ 300 and $ 250 per child, respectively.
Credit eligibility depends on the parents’ modified adjusted gross income (MAGI). This is where part of the confusion arises. Some taxpayers are unsure whether they qualify while others are unsure whether they should opt out.
The good news is that there is still time to do some last-minute planning, although even with a successful deployment some potential administrative challenges remain.
There is still time for last minute planning
A key question is whether the taxpayer wants to receive the first half of the credit monthly or wait for the 2021 tax return to get it. In a recent survey, Ally Bank found that 67% of eligible taxpayers expect to receive monthly loan payments.
Members of this group must log into the Eligibility assistant for the advance child tax credit on the IRS website. The reason is quite simple.
“It’s best to make sure that your bank account, address, name, social security number, and all other information is kept up to date in the IRS system to minimize errors or avoidable issues.” , explains Colin Horsford, CPA and Managing Partner, Horsford Accounting & Advisory in New York.
For taxpayers who are unsure whether they qualify for the credit, there is still time to opt out, using the same tool. This might make more sense for taxpayers who have complex filing situations, such as a divorce or an increase in income.
“Take the money if it comes back to you, but be very, very aware that this is not stimulus money, and you will have to pay it back if you are not entitled to it when you deposit”, warns Adam Markowitz. , EA and Vice President, Howard Markowitz PA, CPA Florida. “And then, if you take the advanced child tax credit voluntarily or receive it because of an IRS error, expect lower than normal refunds (or higher than normal payments). normal to the IRS) on April 15 of next year. “
Expect administrative issues
Tax experts warn that the deployment may not go smoothly. The IRS estimates that there are more than 36 million families who will be eligible based on their 2020 tax returns.
“The IRS is probably going to get the majority of advanced child tax credits. But if they are 90% successful – an achievement that deserves to be commended if they do – it still leaves millions of Americans with a problem, whether it’s getting a payment they don’t. wanted, to get a payment to which they are not entitled or not to receive a payment to which they thought they were entitled, ”says Markowitz.
Previous IRS deployments have also been bumpy.
“There have been a lot of technology issues and failures over the course of several CARES Act stimulus deployments, so there is no reason to expect this deployment to be completely trouble-free,” says Horsford.
If taxpayers do not receive the payment by July 15 by direct deposit, they will still have to wait to see if they receive a check in the mail. If no check arrives, taxpayers will have to recheck their information in the portal. Some may even decide to wait for their filing in 2021.
The administration of the Advanced Child Tax Credit plan is going to be a big business for the IRS.
“Patience is going to be the key,” says Markowitz. “People need to remember the spirit of the CCTA. The ACTC was created to dramatically reduce child poverty by advancing this credit on a monthly basis and making it more repayable for low-income households.
Accordingly, eligible taxpayers should do their part by July 15 by using the IRS tool to provide the most recent data.