What is the Child Tax Credit?
Child tax credit payments, which were set up and expanded under the American Rescue Plan passed earlier this year, amount to $3,000 annually per child ages 6 to 17 and $3,600 annually for children under 6.
When will you receive the credit?
Eligible families will receive half of their credit in the form of monthly payments of up to $250 per school-age child and up to $300 per child under 6 from July through December 2021.
The other half will be paid out when they file their 2021 taxes. The credit is income-based and starts to phase out for individuals earning more than $75,000 a year or $150,000 for those married filing jointly.
Most eligible families won’t need to do anything to receive the payments, but you should understand the implications and why advance payments might not make sense for your household even if you qualify.
Should you opt out of Advance Child Tax Credit Payments?
Because the IRS will base the payments on your 2020 tax return (or, if not yet available, your 2019 return), it’s possible that you could receive excess payments over the amount you actually qualify for in 2021. In that case — unlike excess stimulus payments — you’ll be required to repay the excess.
The IRS will either deduct the amount from your 2021 refund or add it to the amount you owe. The bottom-line is that If you don’t usually receive a refund, then the advance payments could actually cause you to owe more when you file your 2021 taxes.
You might consider opting out if, for example, you were near the income limits in 2019 or 2020 or expect to earn more in 2021. Be aware that couples filing jointly must both opt out, otherwise the spouse who doesn’t will receive half of the joint payment.
It’s not only a change in expected income that could lead to excess payments; it’s also a change in the number of dependents. For example, divorced couples who share joint custody may alternate the years in which they claim their children as dependents for CTC purposes. If 2021 is your former spouse’s year, consider opting out. Parents of children who will turn age 18 in 2021 also should consider opting out.
Other examples of why you may want to consider opting out include if you switched to a higher-paying job, or your spouse went back to work after being unemployed for most or all of 2020. Both of these scenarios could cause you to be in a higher tax bracket next year. Also, if you sold property for a gain and therefore earned more income in 2021, you could possibly have to pay the credit back when you file your 2021 tax return.
Once again, if you fall into any of the above categories or you can afford not to use the credit payments immediately, you may want to opt out. That way, you’ll receive the payments as the full child tax credit when filing your 2021 taxes.
How to Opt Out
The IRS released a new online tool that allows families to check their eligibility, view the upcoming payments and unenroll from getting advanced payments. To use the portal, parents will need to have an existing IRS username or ID.me account, or enroll for one using a photo ID.
To opt out of the advanced payments, families must unenroll using the online portal three days before the first Thursday of the next month, according to the IRS. The agency also said that for parents who are married and filing jointly, both spouses must unenroll.
The deadline to opt out of the first payment was June 28, 2021, but you can still opt out for future payments. Parents have until 11:59 p.m. ET on August 2nd to unenroll for the next payment.
Following is a table showing all the unenrollment deadlines:
Deadlines to unenroll in the advanced child tax credit payments
| Payment Month | Unenrollment Deadline | Payment Date |
| July 2021 | June 28, 2021 | July 15, 2021 |
| Aug. 2021 | August 2, 2021 | August 13, 2021 |
| Sept. 2021 | August 30, 2021 | September 15, 2021 |
| Oct. 2021 | October 4, 2021 | October 15, 2021 |
| Nov. 2021 | November 1, 2021 | November 15, 2021 |
| Dec. 2021 | November 29, 2021 | December 15, 2021 |
Questions
Please contact your Warady & Davis LLP advisor with your questions at 847-267-9600; info@waradydavis.com. You can also visit the Warady & Davis LLP COVID-19 Resource Center for a wealth of information on stimulus assistance, new legislation and much more. This information is updated regularly.