Child Tax Credit: what do I get if I opt out from this stimulus?
The new system of monthly payments is expected to halve the number of children in poverty but some would prefer to have the funds as a single annual payment.
The American Rescue Plan provided a complete overhaul of the Child Tax Credit programme, which had previously provided a single end-of-year credit worth up to $2,000 per child. The new system is not only more generous, but will also distribute the money in the form of monthly direct payments.
However parents can also choose to receive the federal support as a single tax credit, similar to the old system, worth up to $3,600 for children younger than six and $3,000 for those aged between six and 17.
As with the rounds of stimulus check payments the amount on offer begins to phase out above certain annual income thresholds; $75,000 for individuals and $150,000 for married couples.
Why would parents want to receive the money in a single Child Tax Credit?
While the monthly payments are expected to help families budget and provide a form of financial support all year round, this may not be the best use of the funds for everyone. Those who choose to ‘opt out’ of the monthly payments will still get the same amount of money, they are simply delaying it.
This might be beneficial for those who are saving up for a large purchase like a car or deposit for a house. Some families also use the post-tax year credit to pay off any outstanding tax balance if needed.
Dr. Elaine Maag, an economic policy expert, told CNBC: “There’s evidence that shows that some people really like getting that large tax refund, and can use it as an opportunity to purchase a large household item like a refrigerator or put together first and last month’s rent so they can move.”
How to opt out of the monthly Child Tax Credit payments
Fortunately the process to opt out of the monthly payments is fairly straight-forward and can be done entirely online. The IRS is the federal agency tasked with implementing the new system and it has said that two new online portals will be operational by 1 July, ahead of the programme’s 15 July introduction.
Full details about the features of the two portals have not yet been released, but the IRS have confirmed that they will let you opt out of the monthly payments. One will also allow families to update their personal details such as a change of living situation, or any new children in the family.
If you are happy to receive your Child Tax Credit in the form of a monthly payment then you do not need to do anything to trigger the payments; they will begin automatically from 15 July.