Millions of American families received their first Child Tax Credit payment this week, but some may not want these recurring monthly installments for various reasons.
Families can opt out from the remaining five payments using The Child Tax Credit Update Portal from the IRS and instead receive the credit when they file their 2021 taxes.
The maximum credit for 2021 is $3,600 for children under 6 and $3,000 for children between 6 and 17. Families can get half of their credit distributed in six monthly payments on July 15, August 13, September 15, October 15, November 15, and December 15.
Here's how and why you may want to opt out.
How to opt out of the Child Tax Credit payments?
Families can opt out of the payments three days before the first Thursday of the month using "The Child Tax Credit Update Portal," so that they unenroll for the respective and following monthly payments.
If you filed your most recent tax return jointly, both you and your spouse must use the portal to unenroll. If only one of you opts out, the other spouse will continue to get half of the joint payments.
If you unenroll, you can't opt back in currently. However, that option will be available in the future, according to the IRS.
Who should consider opting out of the Child Tax Credit payments?
There are a handful of reasons why you may choose to unenroll from the monthly payments, according to tax professionals.
If you typically owe taxes: If you typically owe taxes to Uncle Sam and use the CTC to offset what you owe, getting half of your 2021 credit as advance payments may mean a bigger tax bill in April 2022.
If your income increased this year: An increase in income this year could make you ineligible for the CTC and require you to pay back any advance CTC payments you received. That's because the IRS is using your most recent tax return to determine the amount of the credit.
Read more: Taxes 2021: Credits, deductions, and tax breaks for student loans and college costs
But if you got a new job or a big promotion, sold property this year, or have other income gains, that change your eligibility for the credit when you file your 2021 tax return. You may not qualify for the credit at all or you may be entitled to a smaller amount.
A single filer with children under 17 making up to $75,000 will receive the full payment for each child, while those earning up to $90,000 will get a reduced amount. Joint filers with children who make up to $150,000 will get the full credit, while those earning up to $170,000 will receive a smaller amount.
Single filers making over those thresholds but up to $200,000 and joint filers making up to $400,000 will be eligible for the old credit, which is $2,000 per child under 17.
If you're divorced: Divorced parents need to be careful with the advance payments. The advance payment goes to the parent who claimed the child on their 2020 or 2019 return. If the situation has changed for 2021, that parent may owe money to the IRS if they don't opt out of the payments.
If you lived abroad: If your main home was outside the U.S. for more than half of 2021, you may also have to repay the money you received in advance payments if you don't unenroll.
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova
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