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Should You Opt Out of the Advance Child Tax Credit?
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Article Highlights: Advance Child Tax Credit Payments Began July 15 Should You Take Advance Payments or Wait for the Credit on Your 2021 tax return? How to Opt Out Basis for the 2021 Child Tax Credit Credit Phase Out Low Income Safe Harbor Repayments 2021 Credit Amounts Determining the Advance Payment Credit for High Income Taxpayers If you have children under the age of 18, by now you likely have gotten your first advance child tax credit payment, either by check or by direct deposit. Be aware, this is money you would have gotten credit for on your 2021 tax return when you file it next year anyway. You are just receiving it in advance, meaning you may not get as much as expected when you file your tax return. The Government is touting the advance child tax credit as a major step toward reducing child poverty and sustaining families during the pandemic. However, paying it in advance and in small monthly amounts may spell trouble for those who traditionally rely on large tax refunds to fund their IRAs, property taxes, vacation, etc., since their 2021 refunds may not be what they’d planned on. Others, who deliberately cut back on tax withholding during the year and use the tax credit to make up for the under-withholding when they file their return, may be surprised next spring to find they owe tax and may even have an underpayment penalty. The list goes on of taxpayers for whom the advance credit payments aren’t going to be very helpful. Small monthly payments can easily be used up on frivolous items and result in unpleasant surprises at tax time. The American Rescue Plan Act of 2021 authorized the advance payments for one year only (2021), and the monthly payments are being made automatically to all qualifying individuals unless they go to the IRS website and opt-out. The Biden Administration estimates that 39 million families are qualified for the advance payment and about 2.6% had opted out of the first payment (July 15, 2021). The payments are estimated based on a taxpayer’s family makeup (children and filing status) and taxpayer income, since the credit phases out for higher income taxpayers. The IRS is basing the advance credits on the income taxpayers reported on their 2020 returns (or 2019 if the 2020 return hasn’t yet been filed). Some taxpayers may be in for an unpleasant surprise when they discover they were not qualified for the advance payments they received either because the number of their qualified children changed, or the children’s ages disqualify them for the credit. On top of that, many may not have been working in 2019 or 2020 and the income the advance credit was based on was lower than their actual 2021 income, which may be above the 2021 credit phaseout threshold, thereby reducing or eliminating the credit. The credit is reduced by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified adjusted gross income exceeds the thresholds illustrated below. $75,000 for single filers and married persons filing separate returns. $112,500 for heads of household. $150,000 for married couples filing a joint return and qualifying widows and widowers. A taxpayer whose advance credit payments exceed what their actual credit turns out to be will need to repay the excess with their 2021 tax return. But, there is a safe harbor repayment for lower-income taxpayers where the excess advance repayment is eliminated or reduced. Thus, families with a 2021 MAGI (modified adjusted gross income) below the applicable income threshold (see table below) will not have to repay any advance credit even if they receive too much. Those with a MAGI above the “complete phase-in” amount will have to repay the entire amount of any overpaid advance credit when they file their 2021 tax return. Those whose AGI is between the threshold and the complete phase-in amount will have to repay a proportional amount of the overpayment.
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Tax and Financial Insights
by NR CPAs & Business Advisors
2026 IRS Mileage Rates: Key Updates and Insights
The IRS has rolled out the inflation-adjusted mileage rates for 2026, offering taxpayers an efficient way to claim deductions for vehicle-related expenses incurred for business, charity, medical, or moving purposes. These adjustments reflect the continued economic shifts impacting car operation costs.
Effective January 1, 2026, the new standard mileage rates are established as follows:
- Business Travel: Increased to 72.5 cents per mile, inclusive of a 35-cent-per-mile depreciation allocation. This marks a rise from the 70 cents per mile rate set for 2025
- Medical/Moving Purposes: Reduced slightly to 20.5 cents per mile, down from 21 cents in the previous year, reflecting the variable cost considerations.
- Charitable Contributions: Consistent at 14 cents per mile, a fixed rate unchanged for over a quarter-century.
As is typical, the business mileage rate considers the integral fixed and variable costs of automobile operation. Meanwhile, the medical and moving rates remain contingent on variable expenses as determined by the IRS study.
It is critical to note that the One Big Beautiful Bill Act (OBBBA) held firm on disallowing moving expense deductions except for specific cases within the Armed Forces and intelligence community, marking a substantial shift since 2017.
When engaging in charitable work, taxpayers might opt for a direct expense deduction over the per-mile method, covering gas and oil costs. However, comprehensive upkeep and insurance costs are non-deductible expenses.
Business Vehicle Use Considerations: Taxpayers can alternatively compute vehicle expenses using actual costs, which might benefit from shifting depreciation rules, particularly through bonuses and first-year advantages. Keep in mind, however, reverting from actual cost calculations to standard rates in subsequent years is restricted, particularly per vehicle protocol and when exceeding four vehicles in concurrent use.
Additionally, parking, tolls, and property taxes attributable to business can be deducted independently of the general rate, an often-overlooked advantage by many business owners.
Tax Strategies for Employers and Employees: Reimbursements based on the standard mileage framework, providing the right documentation is in place, remain tax-free for employees. Meanwhile, the elimination and continued prohibition of unreimbursed employee deductions continue, with particular exceptions offered to qualified personnel across specific occupations.
Opportunities for Self-employed Individuals: Entrepreneurs remain eligible for deductions on business-related vehicle use via Schedule C, with potential to account for business-use interest on auto loans.
Heavy SUVs and Deduction Advantages: Heavier vehicles exceeding 6,000 pounds but under 14,000 pounds open opportunities for substantial tax deductions through Section 179 and bonus depreciation avenues. The lifecycle of such a vehicle bears implications on recapturing initially claimed deductions, urging cautious tax planning.
For professional guidance on optimizing your vehicle-related tax deductions and understanding their implications on tax strategies, contact our office in Coral Gables, Florida, where expert advice and strategic insights are just a call away.
Educator's Deduction Reform: Key Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces significant enhancements for educators' tax deductions starting in 2026, offering both strategic opportunities and planning considerations for educators who qualify. With the reinstated itemized deduction for qualified unreimbursed expenses, educators have a broader spectrum of financial relief. This is complemented by the retention of the $350 above-the-line deduction, allowing educators to maximize their tax benefits by selectively allocating expenses between these avenues.
Understanding the nuances of these changes is crucial for educators and financial advisors alike. The dual-option deduction strategy can potentially enhance tax efficiency, thereby aligning with broader financial planning goals.
At NR CPAs & Business Advisors, based in Coral Gables, Florida, our expertise in tax preparation and planning provides invaluable support to educators navigating these changes. Our comprehensive approach, combined with personalized advice from our experienced team, ensures compliance and optimization in line with the latest tax legislations.
Given these updates, it is imperative to engage with seasoned professionals to fully leverage your deduction strategies. Contact us today to streamline your tax planning under OBBBA's new guidelines and maximize your deductions for upcoming tax years.
