It’s already too late to opt out of the first payment of the Advance Child Tax Credit (CTC). Taxpayers still wishing to unenroll need to do so at least three days before the first Thursday of the following month. For example, to unenroll for the August 13 payment a taxpayer must complete the unenrollment process by August 2. The full schedule of unenrollment deadlines is provided in Topic J of the IRS FAQ for the Advanced CTC. Taxpayers should note that unenrollment may take up to seven days to process and the IRS recommends checking back to ensure that you have been successfully unenrolled. For joint filers both spouses must opt-out of the advance payments to fully opt out. Otherwise, the spouse who did not opt out will receive one-half of the calculated payment.
Taxpayers are also now able to use the Manage Payments Portal to update bank account information for payments beginning in August. July payments will use bank information already on file with the IRS. Bank information updated using the Manage Payments Portal will take effect the following month. In other words, to ensure your payments are directed to the correct bank account, update your bank information as soon as possible. It remains unclear what will happen to misdirected direct deposits.
So, you’ve decided to opt out or you need to update some information. First you will need to authenticate yourself with the IRS. If you already have an IRS secure access account you should use that for the authentication. If not, you will need to use the IRS’ third-party service, ID.me. Kathy Morgan, Enrolled Agent and owner of Puzzled By Taxes, LLC in Haughton, Louisiana warns that the process to either set up an IRS secure access account or to use ID.me for authentication involves multiple steps that while not complex are not simple either. Here are some tips:
- Be prepared for a high technology process and the glitches that come with it.
- Be ready for knowledge-based authentication (KBA) questions. You may need to answer questions about your mortgage or your credit card accounts so have that information handy.
- Have a cell phone plan in your name. If you have a family plan and your name isn’t the one on the plan then you may not be able to create your account.
- Have your photo ID ready. Either a driver’s license or a U.S. passport. The ID.me system will use your phone’s camera or webcam to compare your face to the face on the photo ID.
Kathy notes that “Any taxpayer who doesn’t have access to all this technology has no option [to opt out or update information] as there is not currently a number to call to do an opt out via phone. If the taxpayer doesn’t have a U.S. drivers license or U.S. passport they are also out of luck.”
Kathy also predicts that “Most taxpayers are going to say the heck with it and deal with it at tax time next year” and “if they aren’t claiming the kids or they set their withholding to a minimum expecting the credits to cover the tax or generate a refund, they are going to be in for a big surprise.” She and other tax practitioners are concerned that many taxpayers are not going to understand the difference between the advance CTC payments and the EIPs and, consequently, will be surprised, frustrated, and likely unprepared if they have to repay excess credit amounts. Most tax professionals are predicting another rough filing season.
Here are a few more tips for recipients of the advance payments that may make next year’s filing season go a bit more smoothly for you, your tax practitioner (if you have one), and the IRS:
- If you are required to file a 2020 tax return and have not yet done so do not use the non-filer portal to receive your advance CTC payments. Doing so may get you your payments, but it may also result in you having to file an amended return for 2020. The non-filer portal files a simplified version of Form 1040 and that will be considered your original return if you have a filing requirement. And remember, even if the IRS opens e-filing for amended 2020 returns, amended returns are still manually processed and manual processing will delay your refund.
- Keep your end of year reconciliation letter! The IRS will not be issuing a version of Form 1099 (or any other form) to taxpayers. Instead they will be issuing Letter 6419 which will state the amount of advance CTC payments paid in 2021. For 2020 returns many taxpayers didn’t save their EIP letters (Letter 1444) and once EIP 3 started being issued, the look-up tool for EIPs 1 and 2 was taken offline. Manual review of Recovery Rebate Credits for taxpayers who didn’t save or didn’t receive their Series 1444 letters is one of the reasons many 2020 tax returns have not yet been processed and taxpayer refunds are being delayed. Tax practitioners are hoping that, come filing season 2022, a look-up tool for the advance CTC payments will be available to both taxpayers and tax practitioners with the proper authorizations on file to ensure that the payments are correctly reconciled on taxpayers’ 2021 tax returns.
- Keep revisiting the IRS FAQs. The IRS updates the FAQ information frequently. Unfortunately, the frequent updates mean revisiting the site to check for updates and re-reading questions to ensure that the information you read a week ago hasn’t changed recently. It’s tedious but the information is thorough and reasonably well organized into topics.
The expansion of the child tax credit is going to lift millions of American children out of poverty and help 39 million households. Advance payments of the credit will get money to families who need it right now. If you and/or your tax professional have decided that opting out is a better option for your family it is best to do so as early as possible and to be prepared for the full process from ID verification through verifying that your unenrollment was successful and/or your updates were processed.
Further Reading:
IRS Launches Child Tax Credit Eligibility And Update Tools
IRS Issues Child Tax Credit FAQs And Online Non-Filer Tool