Stimulus Update: Opting Out of Monthly Child Tax Credit Payments -- 5 Questions Answered

The more you know about the Child Tax Credit, the better you can plan.

You've likely been hearing about the expanded Child Tax Credit. It provides $3,600 for each qualifying child under age 6 and $3,000 for each qualifying child from 6 to 17. Half the credits ($1,800 or $1,500, depending on the child's age) will be broken down into monthly installments. That means that children under the age of 6 will receive a monthly payment of $300, and kids between 6 and 17 will receive $250. These monthly payments are part of the American Rescue Plan, signed into law by President Joe Biden in March of this year.

According to the IRS, somewhere in the vicinity of 39 million families will receive payments, beginning the middle of this month. That amounts to almost 90% of all children in the U.S.

Some are opting out

If you've decided to opt out (or "unenroll) by visiting the IRS's Child Tax Credit Update Portal, you may be wondering if there's anything you're overlooking. Here's what you need to know:

1. Why would anyone choose to opt-out?

Families have a variety of reasons for opting out of monthly payments, including:

• Their circumstances are due to change this year (for example, having a baby or adopting a child), and they don't want to mess with having to go into the IRS portal and updating their information.
• They're saving for something important and would rather receive one large payment next year rather than a series of smaller payments. If they have a child under the age of 6, that means receiving a check for $3,600. For each child ages 6-17, it's another $3,000.
• They're worried that they haven't (or won't) pay enough income tax in 2021 and want the Child Tax Credit to act as a "buffer" between them and significant tax debt.

2. What's the cutoff date for age?

It's your child's age at the end of 2021 that matters. For example, if you have a five-year-old who will turn six in November, that child will receive $3,000. This is good to keep in mind as it will help you predict how much you are due to receive.

3. What if I change my mind?

If you have unenrolled from monthly payments and change your mind before the end of the year, there is no mechanism for opting back in -- as of today. According to the IRS, you may be able to opt back in by late summer, but your best bet is to be sure of what you want to do before visiting the IRS website.

4. When can I expect my full Child Tax Credit?

Your 2021 taxes will need to be filed and processed before you receive the credit. Let's say you're due a $2,000 refund and have two children under the age of 6. The IRS will deposit $9,200 into your bank account. That's $2,000 to cover your refund and $3,600 for each child.

5. Could anything go wrong?

It's not wrong, precisely, although it may be frustrating. The Child Tax Credit will be diverted to pay any back taxes you owe, including any shortfalls for the 2021 tax year.

Although monthly payments are currently slated to end in December, some politicians are calling for monthly Child Tax Credits to become permanent. Analysts at the Urban Institute estimate that these first six monthly payments alone will reduce the number of children living in poverty by nearly 2% (from its current rate of 13.7% to 11.3%). Coupled with other features of the American Rescue Plan, the child poverty rate is expected to fall to 6.5%, or less than half of what it is right now.

And don't forget, if you're eligible for the full credit and do receive monthly payments through the end of the year, you are still due the other half of the credit. Again, using the scenario of having two children under the age of 6, that means that you're due another $1,800 per child when you file your taxes. That's another $3,600 to pay down debt, invest in your children's future, or help build an emergency savings account for the family.