The Child Tax Credit (CTC) is a tax credit available to parents with qualifying children that can either increase your tax refund or lower a tax bill. For the 2021 tax year, the total Child Tax Credit amount has increased, age limits have changed, and the credit will become fully refundable – meaning you’ll be eligible for the benefits even if you don’t owe taxes.
Another key change is the IRS will begin sending advanced monthly payments of up to $300 per eligible dependent starting July 15, 2021 through the end of the year so that you will receive half of the full Child Tax Credit you are eligible for.
Receiving these advanced payments can help your overall financial picture right now, but there may be reasons you’ll want to opt out. TurboTax has you covered and is here to go over some situations why you may consider opting out of CTC monthly payments.
Reasons why you might unenroll from the advance monthly Child Tax Credit (CTC) may include:
1. 2021 actual income is more than new CTC income thresholds.
If your actual 2021 income is more than the income reported on your latest tax filings (tax year 2020 or 2019) that the IRS used to determine your eligibility for the advance monthly payments and it exceeds the income thresholds for 2021 Child Tax Credit, then it is possible that you are not eligible for the full amount of the credit and you may have to pay a portion back if you received the advance payments.
The earnings thresholds for CTC in 2021 are:
- Up to $75,000 for parents filing single or married filing separately,
- Up to $112,500 for parents filing head of household
- Up to $150,000 for parents married filing jointly or a parent filing as a surviving spouse
Above these income thresholds, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per child — is reduced by $50 for every $1,000.
For example, a couple using the filing status married filing jointly with a child between the age of 6 to 17 and earning $160,000 would still receive the CTC credit but $500 ($10,000/$1000 x $50 = $500) would be phased out.
The IRS is providing repayment protection and you could be excused from repaying some or all of the excess advanced child tax payments received if you meet certain income eligibility and U.S residence requirements.
Higher-income earners who are not eligible for the expanded $3,000 or $3,600 credit may still be able to claim the Child Tax Credit up to $2,000 under the existing tax provision for each qualifying child under 17. This credit amount is still available to individuals earning up to $200,000 or married couples filing jointly earning up to $400,000.
2. Changes to dependents
If you are a single parent who claimed your child as a dependent previously, but your child’s other parent is claiming them for tax year 2021, then you may want to opt out so that the other parent can receive the full Child Tax Credit when they file their 2021 taxes.
Changes to your child’s age over the age limits in 2021 is not a reason you need to opt out since the IRS will age up your child to their accurate 2021 age meaning they will look at the age information on the latest filed tax return (2020 or 2019) and calculate your child’s actual age in 2021 to determine eligibility for advance payments.
3. Larger refund check later
By staying enrolled and receiving the monthly CTC payments from July to December of 2021, you could receive the following:
- With a child under age 6 you should receive up to $300 per month totaling $1,800 or
- With a child 6 to 17 years old you should receive up to $250 per month totaling $1,500
The other half of the remaining credit you will receive when you file your 2021 taxes in 2022. But, if you were to opt out and unenroll from the monthly CTC payments, you would receive the full up to $3,600 (for a child under 6) or $3,000 (for a child ages 6 to 17). Thus resulting in a larger credit amount and tax refund. Many taxpayers use their tax refunds as a forced savings and prefer a larger lump sum payment at the end of the year.
4. Main home outside of the United States
If your main home was outside of the United States for more than half of 2021 then you may consider opting out and unenrolling in the monthly CTC payments. By maintaining your main home outside of the United States for more than half of the year, you would not be eligible for the Child Tax Credit.
Frequently Asked Questions (FAQs) and Scenarios
How do I unenroll from the advance monthly Child Tax Credit payments?
To unenroll or opt out of the advance monthly Child Tax Credit payments you must use the IRS The Child Tax Credit Update Portal. The IRS Child Tax Credit Update Portal allows you to choose to opt out of these monthly advanced payments, check status of payments, update direct deposit information, switch from paper check to direct deposit, and stop payments anytime.
When will I get my payments if I unenroll from the advanced monthly payments?
By declining the monthly advance payments of CTC, parents who are eligible can claim the full 2021 Child Tax Credit (up to $3,600 for a child under 6 and up to $3,000 for a child 6 – 17) when they file their 2021 taxes in 2022. The CTC advanced monthly payments from July to December 2021 should amount to half of the total credit. So rather than seeing half the credit in monthly installment payments and the other half on their tax return, parents opting out of the monthly payments will get the full CTC credit amount they are eligible for on their tax return.
Can I opt out if I already started receiving advanced monthly Child Tax Credit payments?
Yes, you can opt out of future payments at any time after payments begin. If you choose to opt out of advance monthly payments after payments begin, you will receive the rest of your Child Tax Credit as a lump sum when you file your 2021 taxes in 2022 if you are eligible. To stop payments beginning in August through the rest of 2021, you need to unenroll by August 2, 2021.
What happens if my income rises over the threshold?
If your actual 2021 income increased over the income thresholds and you aren’t eligible for the full amount of the credit, you may have to pay back a portion of the advanced monthly payments when you file your taxes.
If you qualify for repayment protection you will be excused from repaying some or all of the excess you received. If you do not qualify for repayment protection you will need to pay back the entire excess Advanced Child Tax Credit which may lower your tax refund.
How do I qualify for repayment protection?
You can qualify for full repayment protection and won’t need to pay any excess back if your main home was in the U.S. more than half of 2021 and your 2021 income is up to:
- $40,000 single or married filing separately
- $50,000 head of household
- $60,000 married filing jointly or qualifying widow or widower
Repayment protection may be phased out or reduced if your income exceeds these income limitations or your main home was not in the U.S. more than half of 2021.
Repayment protection will be completely phased out if your income is at or above:
- $80,000 single or married filing separately
- $100,000 head of household
- $120,000 married filing jointly or qualifying widow or widower
What is the amount of the repayment protection?
If you are eligible for repayment protection, the amount of your relief from repaying excess advanced Child Tax Credit will be reduced by the full repayment amount of $2,000 multiplied by number of qualifying children the IRS took into account in determining your advance Child Tax Credit payments, minus the number of qualifying children properly taken into account in determining the Child Tax Credit amount on your 2021 tax return so if the IRS based your advanced Child Tax Credit on 3 qualifying children claimed in 2020 and you claimed 1 qualifying child on your 2021 taxes you would be eligible for repayment relief up to $4,000 ($2,000 excess each excess qualifying child) if you qualify.
I had a baby in 2021, how do I get the advanced monthly payments?
If you had a baby in 2021 and you usually file a tax return, the IRS will use your latest tax filing (2020 or 2019) to determine eligibility for the advance monthly payments, so they would not send the advance monthly payments based on the information they have. You will be able to claim the full 2021 Child Tax Credit of up to $3,600 when you file your 2021 taxes in 2022.
Planned for later this Summer and Fall, families will be able to use the IRS Child Tax Credit Update Portal to update things like family status and changes in income.
I am a single filer and have a child that is under 17 years old. During 2020, I earned $71,000 at my job but in 2021 I got a new job paying $79,000. Should I opt out of the monthly CTC? How will this affect my tax return next year?
While the income threshold for the maximum credit is $75,000 for a single filer you would still be eligible for some credit at your new salary of $79,000. However, since your monthly CTC is based on your income of $71,000 you would have received more monthly CTC than you would have qualified for at your new salary of $79,000.
When filing your 2021 taxes in 2022, the monthly CTC payment you received from July to December of 2021 will be based on a lower income and most likely more than the advance payment you are eligible for; therefore, you will have to pay back the overpayment when you file and your tax refund will likely look smaller. Meaning that it will reduce your refund amount by the amount you received and any overpayment.
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