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Child Tax Credit: Should I opt out?

What is it?

The Child Tax Credit (CTC) is a tax credit that has been available to eligible parents in the past to either lower tax bills or increase refunds. There are several changes this year—the amount has increased, age limits have changed, and the credit is now fully refundable.
The biggest change is the advance monthly payments from the IRS. Starting July 15, 2021, the IRS began sending payments of up to $300 per eligible dependent, and they will continue through the end of 2021. By December, parents will have received half of the full Child Tax Credit they’re eligible for, and they’ll receive the second half with their 2021 tax return.

Should I opt out?

There are a few reasons why it might be beneficial for you to opt out of the advance payments. They are:

1. Your 2021 income is different than previous years and will put you over the threshold
Because 2021 tax returns haven’t been filed yet, these payments are based on your latest tax filing (either 2020 or 2019). If your actual income is different than what was reported on that return, it’s possible that you won’t be eligible anymore for the full amount of the credit. If that’s the case and you choose to stay enrolled, you may have to pay a portion back.
The 2021 earnings thresholds are:
  • Up to $75,000 for parents filing single or married filing separately
  • Up to $112,500 for parents filing head of household 
  • Up to $150,000 for parents married filing jointly or a parent filing as a surviving spouse
2. Changes to your dependents
If you’ve claimed your child as a dependent previously, but won’t be this year, you may want to opt out. An example of this would be if you are a single parent and claimed your child last year, but their other parent is planning on claiming them for 2021. By opting out, you can ensure that the other parent can receive the full Child Tax Credit when they file for 2021.
One thing not to worry about is your child’s age—the IRS, when determining your eligibility for payments, will use your previous tax return and then calculate what age your child will be in 2021.

3. You would prefer a larger refund check later
If you’re eligible for the Child Tax Credit, you’ll receive the full amount either way, and it’s up to you which method you prefer. If you stay enrolled in the monthly payments, you’ll receive:
  • Up to $300 per month for a total of $1,800 if you have a child under age 6
  • Up to $250 per month for a total of $1,500 if you have a child between 6 and 17
  • Then, the remaining half of the credit when you file your 2021 taxes
If you opt out, you’ll receive the full $3,600 (children under 6) or $3,000 (children 6-17) when you file your taxes in 2022.

4. Your main home is outside of the US
If your main home was outside of the US for more than half of 2021, you would not be eligible for the Child Tax Credit. To avoid having to pay back the amounts you received, you should consider opting out of the monthly payments.
 

How to Opt Out

According to the IRS, the monthly payments will be distributed on the following dates:
  • July 15
  • August 13
  • September 15
  • October 15
  • November 15
  • December 15
To enroll or opt out of the payments, visit the Child Tax Credit Update Portal  at irs.gov. If you’d like to opt out, make sure to submit your choice by these dates:
  • August 2 for the August payment
  • August 30 for the September payment
  • October 4 for the October payment
  • November 1 for the November payment
  • November 29 for the December payment

Disclaimer: The information provided is for informational purposes only and does not constitute legal or tax advice. Contact your tax advisor or the IRS for additional information.