The IRS has started to mail out notification letters regarding the new provisions of the American Rescue Plan signed into law this past March.
This legislation is providing for taxpayers to receive their newly enhanced child tax credits paid in advance on a monthly basis starting this July, 2021. The difference between these advanced tax credit payments versus the stimulus payments is that you will have to PAY BACK any portion of the credit that you may not be eligible for when filing your 2021 income tax return as the payment is based on your prior year return filed.
In addition, those taxpayers that reduce their withholding to include the offset for their child tax credits may end up owing substantial tax dollars for 2021 as they received these credits in advance instead of receiving the credit as part of their income tax return filing.
In review of this legislation and the implementation of this advanced payment process we STRONGLY encourage all of our clients to opt out of the advanced payments. The page on the IRS website is not yet updated for the ability to opt out, however it will be available sometime in late June. Please click here for more information and for the eventual link to opt out of this program.
If you do nothing and therefore choose to receive the advanced payments, you will need to track those payments the same as the stimulus payments to ensure proper reporting on your 2021 federal income tax return and be prepared to have a vastly different income tax result versus your prior years.
Should you have any questions, please feel free to email any of our CPA team members for more clarification.
As always, thank you for allowing us to be your Trusted Advisors!