Can I save the Child Tax Credit for 2022?

The American Rescue Plan included the expansion of some tax credits that families will be able to take advantage of when they report their taxes next year and possibly get a much larger refund. One of those credits, the 2021 Child Tax Credit, is being paid to families in advance, that is if parents choose not to stop the prepayments.

Parents may wish to hold off and receive the full entitlement they are due according to their eligibility in 2022. Even though the payments have already begun, families can stop the payments at just about any time before the end of the year when the program could expire, but there are specific deadlines for each month.

Also see:

What happens if you don’t want to receive the Child Tax Credit monthly payments?

Stopping the advance 2021 Child Tax Credit payments simple leaves the remainder of the credit that your family is eligible to receive on the table to claim next year when you file a tax return. Depending on your tax liability for 2021 and the other tax credits that you can claim you could be looking at receiving a larger tax refund. If you owe less in taxes than the amount of credits you can claim the balance will be sent to you as a tax refund.

The American Rescue Plan also expanded the Earned Income Tax Credit and the Child and Dependent Care Credit which families will want to examine before they file their 2021 tax return next year.

Deadline to opt out of advance Child Tax Credit payments

The first deadline to unenroll from the advance payments has passed, your first payment should have arrived by now. If not, you’ll want to check the IRS online tool to allow parents to Manage Payments. Parents that want to opt out of payments “must do so three days before the first Thursday of next month by 11:59 pm Eastern Time.”

It will take about seven days for the IRS to process the request which individuals can check on the online portal. If you unenroll, there is currently no way to reenroll, but the IRS says that option will be available in late September this year.

For married couples filing jointly, both spouses need to opt out if they wish not to receive the advance payments. Otherwise, if just one unenrolls, the other spouse will receive half of the monthly payment that the couple has been determined to qualify for.

Payment dates and deadlines to unenroll

How much will families receive per child?

Eligible families can receive up to $3,000 per child between the ages of 6 and 17 at the end of 2021. Each child under age 6 at the end of 2021 could qualify for up to $3,600. The credit is fully refundable, so if a family owes less than the amount of the credit, they will receive the excess as a tax refund.

Under the American Rescue Plan, taxpayers can still claim a nonrefundable credit of up to $500 toward the child tax credit for 18-year-old dependents and dependents between the age of 19 and 24 who are attending college full-time. There won’t be an advanced payment on this credit.

Who is eligible to receive the enhanced Child Tax Credit?

Under the new legislation, individuals will qualify for the full value of the Child Tax Credit so long as their annual earnings are below $75,000; or a joint income of up to $150,000 for married couples, widows, and widowers and $112,500 for heads of household. If household earnings surpass these limits, a reduced credit will be distributed. For every additional $1000 in income, the credit's value will be gradually phased out $50.

The IRS will determine eligibility based on 2020 tax returns or 2019 returns if a taxpayer’s 2020 tax return hasn’t been filed and processed yet, or information provided to the agency's Non-Filer portal. To be eligible, a taxpayer must have their main home in the US for more than half the year and care for the dependent for at least half of the calendar year. The IRS urges taxpayers with children to file a 2020 tax return as soon as possible, if they haven’t already, to get the correct amount from the tax credit. This includes those with no income who are eligible to receive the credit but are not normally required to file taxes. The agency also recommends using direct deposit to receive their refund and the advance payments faster.

Why you might have to return the advance payments

The IRS determined eligibility for the advance payments based on 2020 tax returns, and when that wasn’t available 2019 tax returns, or information provided to the IRS by individuals on the Non-Filer online tool last year in order to claim their first stimulus check. The portal was relaunched and can now be used by those who aren't required to file a tax return to sign up for the 2021 Child Tax Credit. Given that the information in some cases could be two years old, an individual’s circumstances may have changed such that an individual could be overpaid.

The IRS says that “if you expect the amount of tax you owe to be greater than your expected refund when you file your 2021 tax return,” you may want to opt out.

If you expect that your income will be higher in 2021 raising you above certain thresholds or you may owe taxes in 2022, you may want to consider opting out of the advance payments. Although the American Rescue Plan, which included the redesign of the Child Tax Credit for the 2021 fiscal year, created a “safe harbor” clause for lower- and moderate-income taxpayers, above a threshold, taxpayers would need to repay any overpayments they received.

Households with adjusted gross income at or below $40,000 on a single return, $50,000 on a head-of-household return, and $60,000 on a joint return won't have to repay any overpayments on the Child Tax Credit that they receive. However, those households making at or above $80,000, $100,000, and $120,000, respectively, will need to repay the entire amount of overpayment. For households with earnings in between these thresholds, they will need to repay a portion of any overpayments received.