Tax Breaks

Next Child Tax Credit Payment Opt-Out Deadline is November 1

The due date for opting out of the November 15 monthly child credit payments is right around the corner. Why some people don't want to miss that deadline.

The next round of child tax credit payments is scheduled for November 15. That will be the fifth monthly payment this year. (The IRS will send the final payment on December 15.) However, for some families, the monthly payments aren't needed and, in certain situations, might actually trigger a financial hit down the road (see below). That's why the tax law permits parents who don't want or need the money now to opt-out of the monthly child tax credit payments altogether.

If you want to opt-out, use the IRS's online Child Tax Credit Update Portal to unenroll from monthly payments. (Note: You'll need an existing IRS username or an ID.me account to access the portal.) However, there are deadlines each month if you want to opt-out before the next payment arrives. Generally, you need to unenroll by at least three days before the first Thursday of the month in which the next payment is scheduled to arrive (you have until 11:59 p.m. Eastern Time). That means you need to opt-out by November 1 if you don't want to receive the November 15 payment.

For married couples who file a joint tax return, both spouses must opt-out if you want to completely shut down your monthly child tax credit payments. If only one spouse opts out, you'll still get half of the joint payment you're scheduled to receive.

Reasons for Opt-Out of the Monthly Child Tax Credit Payments

Depending on your income, if you started receiving child tax credit payments in July, your monthly payment can be as high as $300 for each child in your family who is five years old or younger or $250 for each kid six to 17 years of age. (More money per month is sent if you begin receiving monthly payments after July.) That can add up to a lot of extra cash in your pocket. For example, if you have four kids ages 3, 7, 11 and 15, you could get up to $1,050 from the IRS each month this year if you started receiving payments in July.

So, you may be wondering why anyone wouldn't want an extra $250 or $300 per child each month. More money is something that people usually like, right? But there are various reasons why it might make sense for you to opt-out of the monthly payments if you really don't need the extra cash right now.

Under the law, the monthly payments are actually advance payments of the child tax credit you would otherwise claim on your 2021 tax return. If you continue to receive the payments, your total monthly payments will equal 50% of the total credit amount you would otherwise be entitled to claim on your 2021 tax return. You'll then claim the other half of the credit when you file your 2021 return next year. However, if you only claim half the credit on your tax return, that's going to lower your tax refund or increase the amount you owe. So, if you're the type of person who always wants a big tax refund or hates writing a check to the IRS each year, opting out of the monthly payments might be a good idea. That way, you'll be able to claim the full credit on your 2021 tax return and boost your refund/lower your tax bill as a result. (Note: We generally don't recommend trying to artificially inflate your tax refund, since that essentially amounts to giving the government an interest-free loan.)

You also might want to opt-out to avoid having to pay back all or a portion of the monthly payments you received. Generally, the amount of each payment is based on your 2020 or 2019 tax return (whichever one was filed most recently). However, the total amount of your child tax credit will be based on information found on your 2021 return. As a result, if your circumstances change in 2021, you could end up getting more than you should 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). Depending on your income, you may be required to pay back the overpayment, or at least some of it. For more on the payback requirements, see Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments.

The Future of Monthly Child Tax Credit Payments

If you opt-out of the monthly child tax credit payments now, you won't have to worry about them for the rest of the year. But what about next year? Will you have to make that decision again?

In addition to authoring monthly advance payments, Congress made other changes to the 2021 child tax credit, too. For example, the total credit amount was increased, the age for an eligible child was raised to 17, the credit was made fully refundable, and the $2,500 earnings floor was removed. A second layer of phase-outs was also added to prevent wealthier families from claiming a larger credit.

As it stands right now, these enhancements only apply to the 2021 tax year. However, President Biden and many lawmakers in Congress want to extend most of them (or even make them permanent). Congress is currently trying to hammer out the details of a major spending bill that could include an extension beyond 2021, but it's too early to tell if the idea will survive the Congressional sausage making or, if so, how long the extension will be (perhaps only for one year). There's a lot of political wrangling that will have to take place before the credit improvements are extended, but it's certainly a possibility while Democrats control both houses of Congress and the White House.

We'll continue to monitor the situation and report any further child tax credit developments. In the meantime, you can read up on all the changes for this year's credit at Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs.

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