For the last several years, the child tax credit has been a major talking point on Capital Hill and in households around the country. Essentially, this is a credit that you can claim on your taxes if you have a qualified child living in your house. In some cases, you may have also received the money in advance. While this can be a great perk when you need it, there may be cases where you want to opt out of the child tax credit.
Doing so could be important based on your individual circumstances, and we will discuss that and other important information associated with the child tax credit below.
- If you generally owe taxes each year, you may want to opt out of the CTC. An advanced CTC payment could end up leading to an even higher tax bill.
- If you make more than $150,000, you'll be ineligible for the CTC. If your income changes to this level partway through the year, you might want to opt out of this credit.
- A request to opt out of the CTC needs to be made at least three days before the first Thursday of every month.
A Little Background on the Child Tax Credit and Advanced Payments
If you have just recently had your own kids, then you may not be well versed on the child tax credit. Essentially, this is the government's way to attempt to ease the strain associated with paying your bills and caring for your children. Qualifying families are subject to up to $2,000 per child that is 16 years old, or under, which they can deduct from their taxes.
In 2021, the government began sending out early payments to help ease the burden on families. Using the IRS, they sent out early payments of 50% of the estimated amount of the tax credit that families were able to claim on their taxes. Starting in July, these payments were sent out on a monthly basis. Parents did not have to do anything on their part to receive these payments. Instead, you have qualified ahead of time based on information previously gathered by the government.
This money is helpful to many parents who need the additional cash to get by, but it is important to remember that this is not free money. It still must be recorded on your taxes at the end of the year. You have the choice to accept the payments or file the entire $2,000 amount on your taxes at the end of the year.
Why You May Want to Opt Out of the Child Tax Credit
If you are eligible to receive advance payments, then this money was sent out often without your approval. Instead, if you want to opt out of the payments, then you need to make a request. There are many reasons why families may decide to opt out of the child tax credit:
You Typically Owe Taxes Every Year
If you expect that you will owe money to the government when you pay your taxes, then it may be in your best interest to opt out. If you get advance payments, then that will lead to a bigger tax bill. In that circumstance, you aren’t really doing yourself any favors.
Your Income Increased During The Year
Congratulations on your raise! It is a great feeling to make more money for your family. However, if you make more than $150,000, then you will be ineligible for the tax credit at the end of the year. If you received advance payments during the year, then you will be required to pay those back.
Keep in mind that a raise at your job is only one way that you may have increased your income. If you sold property or added extra income with a side job, then you may also have gone above the limit. In any case, even if you have the money available when you file, it may still be a pain to pay that back at that time, so opt out now to avoid the trouble.
You Are Divorced
Divorce makes the child tax credit and advance payments a bit trickier. The idea is that the advance payment goes to the parent that claimed their child on the previous tax return. So, if one parent doesn’t claim their kid and they get the money, it will need to be paid back. If this applies to you, then you may want to opt out.
You Lived Outside of the Country
One of the requirements necessary to receive the child tax credit is that you must raise the child in your home in the U.S. for at least half of the year. So, if you lived outside of the U.S. for over six months, then you are not eligible. If you accepted advance payments that year, then you would need to return them. In this case, opting out is a good idea.
Your Child Will Turn 17 Partway Through the Year
If you only have one child on your CTC and they'll be turning 17 partway through the year, you may want to opt out of the CTC in advance of that occurring. Children are no longer eligible for the CTC once they turn 17; any CTC payments that are received once this happens must be paid back to the government. It's a good idea to try to keep your taxes as simple as possible, so this is something you may want to seriously consider!
How to Opt Out of the Child Tax Credit
If any of these conditions apply or you are just not interested in receiving the monthly benefit, and you want to get out of the child tax credit, then you can do so. In order to cease payment, you would need to submit your request three days prior to the first Thursday of the month. You can do that in any month. When you do, you stop that payment and cancel all of the upcoming payments.
You can submit your request by going through the Child Tax Credit Update Portal.
If you filed single, then only you need to log in and submit your request. If you filed jointly, then you and your spouse must both log into the portal to unenroll. That is because if only one of you goes in and submits your approval, then your spouse will continue to get half of those payments.
Keep in mind then when you opt out, you will not have the option to opt back in until the rules change.
As you can see, there are numerous reasons why you may decide to opt out of the child tax credit. If you decide to do so, then follow the steps above. However, remember that you will want to be well-informed of the details and restrictions before you continue. It's important to keep in mind that once you opt out, you won't be able to easily opt back in. Given this, it's important to really think through this decision rather than make it impulsively. If you need help with your taxes, then contact a tax professional.
The image featured at the top of this post is ©iStock.com/Ivan-balvan.