The American Rescue Plan Act (ARPA) passed in early March of this year, included over $1 trillion in programs to stimulate the US economy after the COVID-19 shut down. Included in the package was a provision to increase the child tax credit and send advanced payments of the credit to families all over the country starting in July of 2021. We have received many questions surrounding these payments and below are a few of the common misunderstandings many shared.
- These payments are not the same as the previous stimulus checks issued. They are an advance on the child tax credit that you would have normally received on your tax return when you file next spring.
- They will be reconciled on your next tax return. This means that you do need to keep record of when you received the payments and how much you received. Also, unlike the previous stimulus payments, if you received more than you should have, you could potentially owe the overpayment back when you file your personal tax return.
- You do have the option to “opt out” of the advances and still claim the full amount on your return next year. Although, please note that if you do choose to opt out, you cannot opt back in. Similarly, if you are married filing jointly, both spouses will be required to opt out or you will still receive partial payments.
Talk to your tax advisor today to discuss how these advances will affect your unique tax situation.
