Tax Breaks

When to Opt-Out of Monthly Child Tax Credit Payments

If you want to stop advance payments of the 2021 child tax credit, you have to opt-out using the IRS's online tool before the monthly deadline.

Monthly child tax credit payments have finally started to arrive! The IRS sent the first round of advance credit payments to eligible families on July 15. Additional payments will arrive on August 13, September 15, October 15, November 15, and December 15. For many families, these payments will mean the difference between financial stability and financial collapse. But for other parents, it may make more sense to decline the advance payments and take the full credit (if any) on their 2021 tax return. If you fall into the latter group, you need to opt-out of the monthly child credit payments using the IRS's online Child Tax Credit Update Portal. (To sign-in, you'll need either an existing IRS username or an ID.me account.)

However, there are monthly opt-out deadlines if you want to cut off payments before the next one arrives. To opt-out before you receive a certain monthly payment, you must unenroll by at least three days before the first Thursday of the month in which that payment is scheduled to arrive (you have until 11:59 p.m. Eastern Time). The full list of opt-out deadlines can be found in the table below (note that the deadline for opting out of the first payment has already passed).

Opt-Out Deadlines for Monthly Child Tax Credit Payments

PAYMENT DATE

OPT-OUT DEADLINE

July 15, 2021

June 28, 2021

August 13, 2021

August 2, 2021

September 15, 2021

August 30, 2021

October 15, 2021

October 4, 2021

November 15, 2021

November 1, 2021

December 15, 2021

November 29, 2021

If you miss the deadline and you're eligible for a monthly payment, you'll continue to get scheduled payments until the IRS processes a request from you to unenroll from the monthly payment process. If you do opt-out of the monthly payments now, you won't be able to re-enroll until at least late September 2021.

If you're married and file a joint tax return, your spouse also needs to opt-out since unenrolling only applies on an individual basis. If your spouse doesn't unenroll, you'll still get half of the joint payment you were supposed to receive with your spouse.

Changes to the Child Tax Credit for 2021

For 2020, the child tax credit was worth $2,000 per child 16 years old or younger. It also began to disappear as income rose above $400,000 on joint returns and above $200,000 on single and head-of-household returns. For some lower-income taxpayers, the credit was partially "refundable" (up to $1,400 per qualifying child) if they had earned income of at least $2,500. That means the IRS will issue you a refund check for the refundable amount if the credit is worth more than your income tax liability.

The American Rescue Plan, which was enacted in March, provided a significant expansion of the credit for the 2021 tax year (and only for the 2021 tax year). For example, the credit amount jumped from $2,000 to $3,000 for children 17 years of age or younger (up from 16 years of age) and to $3,600 for children 5 years old and younger. The extra amount ($1,000 or $1,600) is reduced – potentially to zero – for families with higher incomes, though. For people filing their tax return as a single person, the extra amount starts to phase-out if their adjusted gross income is above $75,000. The phase-out begins at $112,500 for head-of-household filers and $150,000 for married couples filing a joint return. The credit amount is further reduced under the pre-existing $200,000/$400,000 phase-out rules. The child tax credit was also made fully refundable for the 2021 tax year (which means refund checks triggered by this year's credit can be greater than $1,400), and the $2,500-of-earned-income required was dropped for the year.

However, the most unique change for the 2021 child tax credit is that half of the credit amount will be paid in advance through monthly payments issued between July and December of this year – if you want them. If you don't want the monthly payments, then you need to opt out of the advance payment process. If you don't opt-out and accept all six of the monthly payments, then you'll claim the remaining half of the total credit amount on your 2021 tax return, which you'll file next year. If you opt-out of some but not all the monthly payments, every dollar you receive from July to December will reduce the amount of credit you'll claim on your 2021 return. (Kiplinger's 2021 Child Tax Credit Calculator tells you how much your monthly payments will be and how much you can claim on your 2021 tax return.)

Who Might Want to Opt-Out of the Monthly Child Tax Credit Payments?

Not everyone will want to receive half their child tax credit in monthly payments this year. For example, if you don't need the money this year, you may be better off taking the full credit on your 2021 tax return to lower next year's tax bill or increase the amount of your tax refund.

If you don't opt-out, you might have to pay back some of the advance payments, too. In most cases, the monthly payments will be based on your 2019 or 2020 tax return. But the credit amount will ultimately be based on the information reported on your 2021 return. If your circumstances change in 2021, you could end up being paid too much in monthly payments. This can happen, for example, if you earn more money in 2021 or you can no longer claim a child as a dependent this year (e.g., because of alternating custody under a divorce decree).

There is a "safe harbor" rule for lower-income families. Parents with 2021 modified adjusted gross income (AGI) no greater than $40,000 (single filers), $50,000 (head-of-household filers), or$60,000 (joint filers) won't have to repay any child tax credit overpayments. However, families with a modified AGI from $40,000 to $80,000 (single filers), $50,000 to $100,000 (head-of-household filers), or $60,000 to $120,000 (joint filers) will need to repay a portion of any overpayment. Parents with modified AGIs above those amounts will have to pay back the entire overpayment.

For complete coverage of this year's credit, see Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs.

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