Child Tax Credit 2021: Opting Out of Monthly Payments


picture of a mother working on a computer while her young child watches

There is a bigger and better child tax credit for 2021 - but some parents might not want to take advantage of one of the most important new perks. In addition to higher credit amounts for 2021, families can receive part of the credit in advance through monthly payments from July to December. However, for some people, it's better to just claim the entire credit all at once when they file their 2021 tax return next year. If that's the case for you, the IRS now has an online portal you can use to opt out of the monthly payments.

Changes to the 2021 Child Tax Credit
For this year only, the credit amount for many families is increased from $2,000 per child to $3,000 per kid ($3,600 for children under age six), 17-year-olds qualify, and the credit is fully refundable.

One additional major element of the new child tax credit regime requires the IRS to make advance payments of the credit each month to qualifying families. The advance payments will account for half of a family's 2021 child tax credit. The IRS will issue these monthly child credit payments to eligible families on July 15, August 13, September 15, October 15, November 15, and December 15. Most payments will be directly deposited into bank accounts. Families for which the IRS does not have bank account information could receive paper checks or debit cards in the mail.

The amount a family receives each month will vary based on the number of children in the family, the ages of the kids and the amount of the family's modified adjusted gross income. Families who qualify for the full $3,000 or $3,600 credit will see checks of $250 or $300 per child for six months. Families with higher incomes who qualify for the $2,000 credit will get monthly payments of $167 per child for six months.

The IRS will base eligibility for the credit and advance payments, and calculate the amount of the advance payment, based on previously filed tax returns. It will first look to your 2020 return, and if a 2020 return has not yet been filed, the IRS will look to your 2019 return. Thus, most eligible families do not have to do anything to get these payments, provided the IRS has your 2019 or 2020 return information and you don't need to change anything to reflect current circumstances.

Families who didn't file a return for 2019 or 2020 because their income is below the threshold required to file a return can still get the advance child tax credit payments, but they'll have to first supply the IRS with some information. For the full details, see How to Get Child Tax Credit Payments if You Don't File a Tax Return.

Opting Out of the Monthly Child Credit Payments
People who want to opt out of the advance monthly payments can do so through the IRS's online Child Tax Credit Update Portal, which is now up and running. You will have to first verify your identity before using the tool. If you already have an existing IRS username, you're set to go. People without an existing account will have to verify their identity with of form of photo identification using ID.me, a trusted third party for the IRS.

There are many reasons a person may want to opt out of the advance payments. Some people would rather take the fully refundable child credit in one lump sum on their 2021 tax return that they will file next year instead of receiving half of the credit in 2021 through monthly payments.

Opting out is also recommended for families who know their 2021 modified adjusted gross income will be too high to qualify them for the child credit. For 2021, the full $3,000 (or $3,600) credit per child is available for families with modified adjusted gross income of no more than $75,000 on single returns, $112,500 on head-of-household returns and $150,000 on joint returns. Families who aren't eligible for the $3,000 or $3,600 credit in 2021, but who have modified AGIs at or below $400,000 on joint returns or $200,000 on other returns, could claim the regular credit of $2,000 per child.

A divorced parent who claimed a child as a dependent in 2020, and whose ex-spouse is eligible to claim the child in 2021, should also look into opting out of advance child credit payments.

Other Tools and Portal Enhancements
Later this summer and fall, the IRS will add more features to the Child Tax Credit Update Portal, which will allow families to adjust bank account information, view their payments, change their mailing address, and update their family status and income.

The IRS has also just launched an interactive Child Tax Credit Eligibility Assistant online tool to help families determine whether they qualify for the advance payments. Because this tool doesn't ask for personal information, users won't have to first verify their identity.

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