Monday is the first deadline to opt out of the enhanced child tax credit — there’s one reason why you should

Just as the Internal Revenue Service is gearing up to distribute millions of monthly child-tax-credit payments to U.S. parents, some of them may want to consider skipping the money now — or brace for a tax bill later, financial experts say.

The rules on this year’s advance payments for the child tax credit, or CTC, might make parents who are near the income-eligibility limits choose to opt out so they can avoid repaying the sum at tax time next year.

And they might need think quick. The first payments go out July 15 and Monday, June 28, is the deadline to skip the July payment, the IRS says. People who want to unenroll for the July payment have until 11:59 p.m., Eastern Time, on Monday.

Aug. 2 is the deadline to skip the Aug. 13 payment and Aug. 30 is the last day to skip the Sept. 15 payment. For now, someone cannot opt back into receiving the money after they have opted out. The ability to re-enroll will start in late September, according to the IRS.


‘People have to look at this carefully. They don’t want to be unpleasantly surprised.’


— Marianela Collado, Tobias Financial Advisors

Single filers making up to $75,000, individuals making up to $112,500 when filing as head of household and married couples filing jointly that earn up to $150,000 are eligible for the full payments.

Parents who are already near those income thresholds need to think especially hard if they are getting raises this year or better-paying jobs that will knock them out of income eligibility, they say.

“People have to look at this carefully,” said Marianela Collado, co-owner and CEO of Tobias Financial Advisors. “They don’t want to be unpleasantly surprised.”

The IRS last week unveiled the online portal where households can opt out of receiving the advance payments, which will come in monthly installments.

The child tax credit has unique rules this year

For decades, the credit has been paid as a lump sum, folded into the refund people receive at tax time. The $1.9 trillion American Rescue Plan passed in March enlarged the payout amount and said one-half of the credit can be paid in six monthly advance payments. Monthly bills do not wait for tax refunds to hit checking accounts, lawmakers and advocates said.

For this year, the CTC amount rises from $2,000 to $3,600 per child for kids under age 6. Parents of young kids will get $300 per month because half of $3,600 is $1,800, and $1,800 divided by six is $300. The CTC payout is $3,000 per child between the age of 6 and 17 and parents of these kids will get $250 monthly.

The income limits to receive full payments mirror the rules for stimulus-check eligibility.

But there’s one important point: The IRS is using income information from 2020 tax returns (or 2019 if 2020 returns are not yet available) to determine the eligibility and the amount of advance payments. But these are still ahead-of-time payments for a credit on a 2021 tax return.

So if that 2021 return ultimately reveals an overpayment after accounting for a taxpayer’s income and household situation, the IRS will want the excess money back.

The IRS has said it will subtract the excess amount out of a taxpayer’s refund. If someone owes taxes, including the obligation for the CTC overpayment, the IRS says it can work out installment plans.


‘If you are concerned you are going to hit the upper limit, why even take the risk? Just opt out.’


— Marianela Collado, Tobias Financial Advisors.

“If you are concerned you are going to hit the upper limit, why even take the risk? Just opt out,” Collado said. The worst that could happen is coming under the limit and getting the complete credit during tax season, she said.

There’s no added penalty if a person has to repay the advanced money, Collado noted.

Someone who expects to repay the CTC advances could conceivably park the money in something like a savings account and gain interest before tax season, said Alvin Carlos, financial planner and managing partner for District Capital Management, a financial-adviser firm located in Washington, D.C.

But that move’s not right for everyone, he said. “It’s really the emotional impact of having to pay,” Carlos said.

He’s planning to talk with several clients about skipping the advance payments, including one who has been out of work raising the couple’s young child but is now considering going back to work.

Too much income can put you on the hook for repayment

People with a change from year to year in the number of claimed dependents might also consider opting out, said Jeremiah Barlow, head of family wealth services at Mercer Advisors.

For example, he said, it’s common for divorced parents to alternate which years they claim their children as dependent for CTC purposes. If 2021 is a parent’s off year, Barlow said they should opt out.

On the flip side, if a couple is married and filing jointly, they both need to opt out. Otherwise, they’ll still get half the advance payment, he said.

Another set of people who should consider opting out are parents with older kids who were claimed as dependents in 2020 but will not be claimed as dependents in 2021.

Here’s where IRS repayment protection rules might help who didn’t account for fewer dependents.

Single filers making less than $40,000 on their 2021 return — $50,000 for head of household and $60,000 for married couples — don’t need to pay back any excess amount. Above those points, protections fade away and disappear for individuals making $80,000, head of household filers with $100,000 and married couples with $120,000.

How to guess 2021 income now — and tax tactics to lower it

When deciding whether to opt out of the payments, part of a person’s challenge may be estimating how much money they’ll make in 2021 when there’s still six months to go.

There are a couple ways to make an informed guess, Barlow said. First is by looking at the most recent tax return. (The income amount that the IRS is looking for, the “modified adjusted gross income” can be found on Line 11 of Form 1040.)

Another way is having tax professionals make a projection on 2021 income and tax liability. There’s also the “back of the napkin” approach , which is adding up the earnings from W2s and other income-related forms like 1099s. From there, a person can subtract the standard deduction. (It’s $25,100 this year for married couple and $12,550 for individuals.)

The IRS also launched an online tool that can help people determine their eligibility. The link is here.

What if someone is right around the income limits, but is set on getting the advance payments? That’s where tax planning comes in, Barlow and Collado noted.

One way to do it is by increasing 401(k) contributions that, in turn, will reduce taxable income. The contribution limit is $19,500.

IRA contributions can also reduce adjusted gross income — but bear in mind that deduction rules can get complicated and have limitations depending on marital status, income and access to a retirement plan through work.

“Your best bet is really to go all in on the 401(k) to reduce that number,” Collado said, referring the adjusted gross income.

Another strategy is to contribute to a health savings account that can also reduce adjusted gross income, she said. People with high-deductible health plans can use HSAs, contributing up to $3,600 for plans with individual coverage and $7,200 for plans with family coverage.

Walking away from money can feel like a big decision, but Barlow emphasized a person can decide at any time to skip the advance CTC payments.

As for the potential tax strategies, he said, “there’s plenty of time to plan.”

See also: Some families may have to pay back their child tax credit — 4 key differences with stimulus checks

This story was updated on June 28.