The American Rescue Plan, signed and put into action on March 11th, 2021, gave some extended relief to many that were still in desperate need. There were additional stimulus payments, extension of extra unemployment checks, and a vast list of other programs that are being funded by the $1.9 trillion dollar package.
Many families with children are familiar with the long standing Child Tax Credit that they receive on their tax returns. Part of the American Rescue Plan included increasing the amount per eligible child. Before the plan went into place the credit was $2,000 per qualifying child age 16 and under. Now currently for 2021 the credit is increased to $3,000 per qualifying child age 6-17, and $3,600 for children age 5 and under. In addition, the previous credit was only a refundable credit up to $1,400 -- meaning that if the tax you owed was $200 (and you are claiming one child) the previous credit would take off the $200 in tax owed, but you would not get the remaining $1,800 in tax credit. Instead, you would only receive the refundable portion of $1,400. Now the whole credit is refundable, meaning anything that is left after wiping out the tax owed is all added to your refund.
The American Rescue Plan also called for families with qualifying children to automatically start receiving an advance on this credit starting in July and going through December. The payment would be made to families each month on the 15th. The payments will be $250 a month for children ages 6-17 and $300 a month for ages 5 and under. This will amount to half the credit being paid out in advance on each qualifying child.
Why you might want to unenroll.
While many families probably want this advance on their tax return, some may want to consider unenrolling. For instance, many rely on the Child Tax Credit to break even (or close to it) on their tax bill, or to just owe less tax during tax filing season. If that's the case for you, and your tax withholdings are the same as in 2020, the advance payments could mean you actually have to pay some of that credit back.
Another reason is the IRS is basing your eligibility off of 2020 tax returns, or the 2019 tax return if 2020 has not yet been filed. If a household has made more money in 2021 and no longer qualifies, they could have to pay some or all of the Child Tax Credit advance back.
The new maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of:
$75,000 or less for singles,
$112,500 or less for heads of household and
$150,000 or less for married couples filing a joint return and qualified widows and widowers.
Two other reasons to unenroll: First, if someone was divorced or separated and now they don't qualify to claim the child on their tax return. In this case, only the other spouse would qualify, or possibly another family member that now cares for the child. And second, if the main home of the taxpayer was outside the United States for more than half the year in 2021, they would no longer qualify.
How to unenroll
Since the advance payments are automatic and will be sent out regardless of your 2021 financial situation, the IRS has a portal to check your eligibility and monitor the payments. In addition, you can select to unenroll. However, once you choose to unenroll there is no changing it back. You will have to wait until you file your 2021 tax return to get the whole credit.
To unenroll is fairly self explanatory as you navigate the portal from the IRS website. Doing so with a smartphone is the easiest option. When visiting the site, you have to create a log in through a third party service, ID.me. You need to upload pictures of the front and back of your state issued ID, and it scans your face with the camera on your phone. If the system feels like it didn't get a good picture or can't verify it, you will do a video call with a real person and show them your ID through the video call. Once you are verified, you simply hit unenroll and you are good to go.
Another word of caution though is if you are married, both husband and wife have to go through the process and elect to unenroll.
While it might be beneficial for some to receive their credit early, it might be worth checking your eligibility for the credit for this year. It's never fun to get caught by surprise come tax time. So make sure you aren't taking too much of your refund in advance.