It has been two weeks since the new Advanced Child Tax Credit started paying out to taxpayers. For many taxpayers, the tax credit payment has been a relatively straightforward process given the direct deposit into their bank accounts.
However, this is a program the IRS anticipates involving 39 million American families. Given the scope, there were bound to be some glitches. These challenges include whether one should opt out, as well as determining why they haven’t received a payment.
“The rollout has gone relatively well to date though there were some expected snags,” says Adam Markowitz, EA & Vice President, Howard Markowitz PA, CPA in Florida. “The majority of eligible recipients received their payments for each eligible child and have been able to successfully use the funds.”
But some taxpayers still need guidance. As we get closer to the August payment, some taxpayers are wondering how they should handle their individual situations. And they will have to act quickly as the opt-out period ends on Monday, August 2.
What If You Didn’t Get a Payment
There are some taxpayers who did not receive a payment. If a taxpayer believes that they are eligible, there are some basic steps to take. The first involves simply going to the IRS Update Portal.
“It is always a good idea for taxpayers to double check the update portal in between payments and ensure that their information is correct,” explains Colin Horsford, CPA and Managing Partner, Horsford Accounting & Advisory in New York.
Taxpayers can also reach out to the IRS to try to get guidance. But tax professionals are finding that this approach can be challenging.
“Unfortunately, there is a subset of taxpayers who received the incorrect amount, never received a payment or received a payment despite opting out,” says Markowitz. “Many of these taxpayers tried contacting the IRS to resolve their issue but were unable to speak to someone due to the IRS backlog and shortage of customer support representatives.”
Ultimately if a taxpayer doesn’t start receiving the payment, they will be able to access the credit when they file their 2021 return. The challenge with that approach is that having a monthly payment would be beneficial to many.
You Can Still Opt Out
While there are some taxpayers who did not receive their payment, there are others who do not want to receive one or should not be receiving one. In fact, some taxpayers were surprised to get a payment and are wondering how to handle it.
“Predictably, the biggest issue that we’ve had so far is people getting money they didn’t know they were entitled to,” says Markowitz. “There are a lot of people who got very small checks who are entitled to a relatively small CTC, and they’d probably rather not have the payments on a monthly basis.”
The challenge for these taxpayers is that when they file their 2021 return, they might not have been eligible for the payment. Then they will have to pay it back.
To avoid this situation, those taxpayers should proactively log onto the IRS Portal and opt out. They can then resolve it on their actual tax return. In order not to receive the next monthly payment, taxpayers must opt out by August 2nd.
Once the taxpayer opts out for August, they must remember that the July payment might be due back to the government at some point. Tax professionals warn that they should not assume they can simply send back the payment to the IRS.
“I suppose there is a world where you could pay the money back to the IRS, but I’m not all that confident that the IRS will ultimately get this right with as many problems as it’s having processing much of anything,” says Markowitz.
Tax Time Will Allow for True Up
Ultimately the Advanced Child Tax Credit will be a beneficial program for many taxpayers. But as the rollout continues, taxpayers must be diligent in making sure they are managing their credit correctly.
For some, it will simply involve using the IRS tool. But for those taxpayers whose situations are more complex, professional help will likely be needed.
“Speak with your tax preparer or CPA about the reporting requirements and the potential tax impact of the payments to avoid surprises next tax season,” advises Horsford.
Finally, if you aren’t sure you are due a payment, take the opportunity to opt out on the portal by August 2.