Still Confused About Advanced Child Tax Credit? Here’s Some Last-Minute Advice

Excitement is building this week as the new Advanced Child Tax Credit launches. Yet as the July 15 rollout nears, there are still taxpayers who are unsure about how this new program will impact them.

“The much-anticipated child tax credit payments being released this week, while certainly welcomed, are still broadly misunderstood by most parents. Our research shows nearly half of eligible consumers said they are uncertain whether they qualify for the payments and another 25% are confused about how to access them,” said Anand Talwar, Deposits and Consumer Strategy executive for Ally Bank.

No wonder there is confusion as it is not common for taxpayers to get monthly payments from the government simply for having children. Yet that is what is about to happen across the country. For children ages 5 and under, the credit is $3,600. For children ages 6 to 17, the payment is $3,000. The first half of the credit will pay out monthly. This means for a family of four with children ages 4 and 8, parents will get $300 and $250 per child respectively.

Qualifying for the credit depends on the parents modified adjusted gross income (MAGI). That is where some of the confusion arises. Some taxpayers are not sure they qualify while others aren’t sure if they should opt out.

The good news is that there is still time to do some last-minute planning, though even with a successful rollout, 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 until the 2021 tax return filing to obtain it. In a recent survey, Ally Bank found that 67% of eligible taxpayers expect to take monthly payments of the credit.

Those in this group should log onto the Advance Child Tax Credit Eligibility Assistant on the IRS site. The reason for this is quite simple.

“It’s best to ensure your bank account, address, name, SSN and all other information are updated in the IRS’ system to minimize avoidable errors or snags,” says Colin Horsford, CPA and Managing Partner, Horsford Accounting & Advisory in New York.

For those taxpayers who are not sure they will be eligible for the credit, there is still time to opt out, using the same tool. This might make the most sense for taxpayers who have complex filing situations, such as a divorce or increased income.

“Take the money if it’s coming to you, but be very, very aware that this is not stimulus money, and you will have to pay this back if you aren’t entitled to it when it comes time to file,” warns Adam Markowitz, EA & Vice President, Howard Markowitz PA, CPA in Florida. “And then if you do voluntarily take the Advanced Child Tax Credit or receive it dur to IRS error, expect smaller-than-usual refunds (or larger-than-usual payments to the IRS) on April 15 next year.”

Expect Administrative Glitches

Tax professionals warn that this might not be a smooth rollout. The IRS is estimating that there are more than 36 million families who will qualify based on their 2020 tax returns.

“The IRS is probably going to get the majority of the Advanced Child Tax Credits correct. But if they get 90% right – a feat which should be commended if they do – that still leaves millions of Americans on the hook with a problem, whether getting a payment they didn’t want, getting a payment they aren’t eligible for or not getting a payment that they thought they were eligible for,” says Markowitz.

Prior rollouts from the IRS have been bumpy as well.

“There have been numerous glitches and technological failures during several CARES Act stimulus rollouts so there’s no reason to expect this rollout to be completely problem-free,” says Horsford.

If taxpayers don’t receive the payment on July 15 through direct deposit, they will still need to wait to see if they get a check by mail. If no check arrives, taxpayers will need to double check their information in the portal. Some may even decide to wait until their 2021 filing.

Fingers Crossed

Administering the Advanced Child Tax Credit plan is going to be a significant undertaking for the IRS.

“Patience is going to be key,” Markowitz says. “People have to remember the spirit of the ACTC. The ACTC was created to make a huge dent in childhood poverty by advancing this credit on a monthly basis and making more of it refundable for lower income households.”

As a result, taxpayers who are eligible should do their part before July 15 in using the IRS tool to provide the most current data.

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