Like millions of American households, I got my monthly advance CTC payment deposited in my bank account today! For most this is awesome news because there were genuine concerns that there could be long delays with the IRS making these ARPA funded payments. You can see more on the Advanced CTC in this detailed article, but suffice to say that the communication and roll-out of this payment has been much smoother than I thought it would be.
My 2021 Income May Be Too Much to Qualify for the CTC advance payment
My issue though is a good problem to have, but may affect a lot more people than they realize – especially if their taxable income went up this year (e.g. you got a job!). Essentially because I got a new job and hefty signing bonus, my 2021 income will be too much to qualify for the CTC; which is restricted to singles earning less than $200,000 or married couples making less than $400,000.
Because my total income (AGI) will likely be over $200,00 this year (2021) I would not be able to qualify had I tried to claim the CTC credit in my 2021 tax return, which I would have filed in 2022. But because these monthly payments are being done in advance this year – hence the “advanced” part of the CTC credit – the IRS is essentially using my 2020 tax return income to figure my payment.
I should have thought about this earlier, but only realized when I saw the July 2021 payment hit my back account this morning. Fortunately the IRS allows us to opt-out for future monthly payments and its a pretty easy process as shown in the next section.
How to Opt-Out or Unenroll from monthly CTC payments in 2021
Tax payers can easily unenroll for these advance payments through the IRS’ Child Tax Credit Update Portal (CTC UP). I forgot to do this for the first advance Child Tax Credit payment in July, but I went in (you need an IRS account, which you easily setup here) and did the unenrollment.
There is big blue button at the end of the CTC portal page (after logging in) to unenroll from these payments. You can see the before and after screenshots from my unenrollment process. Took less than 2 minutes. Just remember, once you unenroll or opt-out from these payments, you CANNOT enroll again. If for some reason you need to claim these, you will have to do it via your 2021 tax return filed next year.
Another important point to note was that if your latest return filed was a joint one, both people will have to manually opt-out from getting this payment. The credit is otherwise split and goes to the person that did not unenroll.
But, as discussed in the next section, I will still need to account for the one payment I got and discuss the impact on my 2021 tax filing and potential refund.
Impact on my 2021 Tax Return Refund in 2022 by getting unqualified CTC payments
Because I did get the $250 July payment that I likely would not qualify for, I will have to reconcile in my tax return next year. Since the payments are based on IRS’s estimates of my income (essentially using the latest tax filing data), it would not know about my updated 2021 income situation.
The CTC overpayment will be adjusted via my 2021 tax return filing and will likely lower any refund payment I would have been eligible for. If I don’t get a refund I would need to repay the excess amount with my tax filing. There won’t be a penalty for these advance overpayments.
Note that if your income fell or changed in 2021 you can report this adjustment on the CTC portal which may allow you to get this payment. The IRS will use this to change their estimate of your 2021 Child Tax Credit and adjust the amount of monthly advance Child Tax Credit payments, including any retroactive payments you may be due.
Other situations where you may need to reconcile ineligible or overpayments in your tax return or via CTC portal
Other than income related reasons, you may need to repay or reconcile ineligible CTC payments in your 2021 tax return. This could lower your overall refund. So if you have one of these scenarios, look to unenroll from these monthly payments or update your date on the CTC portal.
- CTC payments for two qualifying children properly claimed on your 2020 tax return, but you no longer have qualifying children in 2021, the advance Child Tax Credit payments that you received based on those children are added to your 2021 income tax unless you qualify for repayment protection.
- Sales people who have variable compensation may prefer to claim this in their tax return next year
- Marital status changed (can be reported in IRS CTC portal) which may affect dependents you can can claim
- Divorced or separated parents
- Spousal agreements on claiming dependents
- Birth of a child dependent
The IRS will send you Letter 6419 in January 2022, to provide the total amount of advance Child Tax Credit payments that were disbursed to you during 2021. Keep this letter as you may need it when you file your 2021 tax return during the 2022 tax filing season.