Should You Opt-Out of Child Tax Credit Advance Payments?

Posted on Monday, June 14, 2021

The Internal Revenue Service has recently started sending out letters to taxpayers who may be eligible to receive advance payments of the Child Tax Credit.   Eligible taxpayers will start receiving monthly payments on July 15th, unless they choose to opt-out of any advance payment.  

To understand whether opting out of the credit makes sense, one must understand the changes the American Rescue Plan Act made to the Child Tax Credit.  Previously the credit was taken on your tax return and was generally non-refundable.  The credit is now refundable for the 2021 tax year. The new legislation also increased the maximum credit from $2,000 per child to $3,600 for children under the age of 6 at the end of the tax year and to $3,000 per child between 6 and 17 years of age.   

 Additionally, half of the credit is to be paid in advance to eligible taxpayers.  This advanced payment will be paid in monthly installments of $300 or $250 per child from July 15th to December 15th.   Eligibility for the credit is determined using 2020 adjusted gross income.  Taxpayers can opt-out of the credit on IRS.gov on or before July 1st.   

Child Tax Credit - Opting Out

There are various reasons why opting out of receiving the monthly payments could make sense for a taxpayer.  Keep in mind that the monthly payments are an advance of your tax refund.  The advanced payments will result in some taxpayers with smaller than expected refunds next April or potentially a balance due on next year’s return.  Opting out of the monthly payments could be a way for taxpayers to keep their refunds consistent from year to year.   Taxpayers whose dependents change from year to year, such as divorced parents with split custody of a child, may also want to consider opting out the advanced payment to avoid having to repay any overpayment.   Other taxpayers who may want to consider opting out are those whose AGI is above the phase-out limit ($150k Married Filing Joint, $75k Single, $112,500 Head of Household).  The additional credit starts to phase out over the income limit and any excess child credit received would need to be paid on next year’s tax return.  

If you have questions on whether opting out of the advance payment of the Child Tax Credit makes sense for you, please reach out to your DWD advisor. 

Contributed By: Jessica Ogle, CPA | Partner | DWD CPAs & Advisors

Posted in Tax Topics For Individuals

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.