Child Tax Credit Payments – How to Opt-out

Jul 21, 2021

From Dust to Transfer

In the past week, many people have received “gifts” from the IRS in the form of an unexpected bank deposit or check in the mail. Unfortunately, many of these recipients – especially for our clients – are not eligible for these payments and will need to return the money to the IRS when they file a 2021 tax return. As such, we recommend that any of our clients who receive these payments (first payment made mid-July, with future payments expected monthly) select to “opt out” of the advance payments and wait until they file 2021 tax return to claim any eligible refundable credits.

Who needs to opt out? Only when both of the following are true…

  1. You reside outside of the USA.  This means that you do NOT qualify.
  2. You file with an address inside the USA.  This means that the IRS will assume that you YES qualify.

What exactly are these payments for?

For now, this is a one year expanded child tax credit that comes from the $1.9 trillion American Rescue Plan. It increases the current child tax credit to give families up to $3,000-$3,600 per child. The full credit begins to be phased out for heads of household earning more than $112,500 and joint filers earning more than $150,000.

So why are payments being made now?

Unlike the traditional child tax credit that is paid as a part of the tax filing, the 2021 expanded child tax credit can be paid in advance. Starting July 2021, eligible parents can get up to $250-$300 per child every month. They can claim the remainder of child tax credit with their 2021 tax filing.

OK great, so why would I opt out?

You should opt out, because you are probably not eligible for these payments and will need to repay them with your 2021 tax filing. It is possible that you will have the standard Additional Child Tax Credit (up to $1,400 per child) to cover most of the advance payment, however our recommendation is to just wait until tax filing to claim your refund and not risk owing money back to the IRS.

Why aren’t I eligible for these payments?

People living outside the United States are NOT eligible for the expanded child tax credit. It is possible the IRS mistakenly is sending you the advance payments, however if you are not a U.S. resident in 2021 you will need to return these payments with your 2021 tax filing. Non-U.S. residents are still eligible for the $1,400 Additional Child Tax Credit as in prior years, however they are not eligible for the $3,000-$3,600 that U.S. residents cans receive.
Additionally, certain U.S. residents should consider opting out of the advance payments as the IRS bases eligibility on prior income levels. If someone has higher 2021 income that disqualifies the expanded child tax credit payments, they will need to return the payments with the 2021 tax filing.

OK, I’m convinced. How can I unenroll from any more of these advance payments?

The easy answer is to use the online system. Just click on the link below and select to unenroll: https://www.irs.gov/credits-deductions/child-tax-credit-update-portal. The only problem is that the majority of people residing outside of the U.S. have expressed problems with using this site. As such, your best bet is probably to just call the IRS Advance Child Tax Credit hotline and opt out: 1-800-908-4184. If filing joint tax return, both spouses need to call.

Note, it takes around two weeks for unenrollment to take effect and you have until 2-August to unenroll from the second payment.

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Many taxpayers receive identity verification notices from the IRS, and in most cases, the process is straightforward and can be resolved without much difficulty.

You have the following options to verify your identity:

Option 1: Verify through the IRS using your ID.Me account

 

Option 2: Use the IRS Document Upload Tool

    • Please note when they ask for the access code answer "no" and put in the notice/letter type 5447C

    • Alternatively, we can upload the documents on your behalf. (Please note additional fees apply.)

For both options 1 and 2:

    1. Allow at least 30 days to process.
    2. You can then check your status on IRS Where's My Refund or request that we pull your transcript.

    Option 3: Call the IRS

      1. Phone number: 1-267-941-1083

      1. When calling the IRS please note that there could be long wait times. We recommend the best time to call is as close to 1PM Israel time as possible, when the lines first open.

    When speaking with the IRS agent:

      • Let them know you are calling in response to a Letter 5447C letter for tax year 202x.

      • Provide the control number as it appears on the first page of the letter.

      • Be prepared to answer any question they ask from the first 2 pages on both tax returns, including:

          • complete address

          • filing status (Head of Household /Married Filing Separately / Married Filing Joint/ Single)

          • refund amount.

      • If you are unsure of an answer you may ask the agent where it can be found on the return.

      • Know the dates of birth for you and the children on the return

      • Know your mother's maiden name

      • If they ask about W-2 income, tell them since you live outside of the US your income isn’t reported on a W-2, but rather the equivalent form 106 instead.

    They hopefully will not ask any more financial questions.

    If your identity is successfully verified during the call, the IRS will typically inform you immediately. Your refund should then be released within approximately 6-9 weeks.

    Documents Required in All Cases

    Regardless of the verification method you choose, you will need:

      • a copy of the 5447C letter you received

      • the first 2 actual 1040 pages of your 202x and 202x tax returns

    Additional Documents for ID.me or Document Upload Verification

    If you are verifying online through ID.me or using the IRS Document Upload Tool, you will also need:

    Two clear copies of acceptable identification, as listed in the IRS letter (for example passport and license).