$3,000/$3,600 Child Tax Credit: Why might it be beneficial to opt out?

The IRS is preparing to send out the monthly direct payments from 15 July but some families are choosing to get the support as a single annual tax credit instead.

$3,000/$3,600 Child Tax Credit: Why might it be beneficial to opt out?

From 15 July the IRS will begin automatically distributing payments worth up to $300 per child to tens of millions of families across the United States.

The payments are part of the reformed Child Tax Credit, included in the recent American Rescue Plan stimulus package. The White House anticipates that the new Child Tax Credit could halve the number of children in poverty over the next 12 months but some may choose to opt out of the monthly payments.

Should I opt out of the monthly Child Tax Credit payments?

Although the monthly payments are the default method, parents do have a choice in how they receive the money. Typically the IRS will send six monthly payments to eligible families, with the remaining six months’ worth of cash coming as a lump sum tax credit at the end of the year.

In the past the Child Tax Credit was doled out as a single end-of-year tax credit, which some families used to reduce their outstanding tax balance or to use it as insurance in case they are hit with a larger-than-expected tax bill. If you are used to relying on a Child Tax Credit when you come to filing your taxes, it may make sense to opt out of the monthly payments.

Choosing to receive your Child Tax Credit entitlement at the end of the tax year also prevents you from having to pay back the monthly payments if your personal situation alters during 2021. For example, someone who enjoys an income increase in September may no longer be eligible for the Child Tax Credit because their adjusted gross income may have exceeded the $75,000 threshold.

If that were the case then they would have to repay some or all of the monthly Child Tax Credit payments they had already received during 2021. Opting out of the monthly payments ensures that you are not overpaid initially and forced to pay back the money.

How do I opt out of the monthly Child Tax Credit payments?

If you are eligible to receive the Child Tax Credit then you will automatically begin getting the monthly payments from 15 July. But you can use the IRS’ new online portal to adjust your preference.

Simply visit the Child Tax Credit Update Portal and sign in using your IRS username or account (you can also create one on the page if you do not currently have one). Once you have accessed your profile, simply select 'Unenroll from Advance Payments' to switch to the single tax credit.

Bear in mind that the deadline to alter before the first set of payments has already passed. To opt out of the 15 July payment you would have had to submit your request by 28 June at the latest. However it is not too late to opt out of future payments: as long as you have completed the unenrollment process by 2 August you will not receive the monthly payment for mid-August.