For parents looking to opt out of receiving the advanced child tax credit payments that are set to start July 15, the last day to do so is June 28, 2021.
Last week, the IRS released a new online tool that allows families to check their eligibility, view the upcoming payments and unenroll from getting advanced payments. To use the portal, parents will need to have an existing IRS username or ID.me account, or enroll for one using a photo ID.
To opt out of the advanced payments, families must unenroll using the online portal three days before the first Thursday of the next month, according to the IRS. The agency also said that for parents who are married and filing jointly, both spouses must unenroll.
Parents have until 11:59 p.m. ET on June 28 to unenroll for the first payment. Here is a table showing all the unenrollment deadlines.
The child tax credit payments, which were set up and expanded under the American Rescue Plan passed earlier this year, amount to $3,000 annually per child ages 6 to 17 and $3,600 annually for children under 6.
Eligible families will receive half of their credit in the form of monthly payments of up to $250 per school-age child and up to $300 per child under 6 from July through December 2021. The other half will be paid out when they file their 2021 taxes. The credit is income-based and starts to phase out for individuals earning more than $75,000 a year or $150,000 for those married filing jointly.
It's important to understand that with these payments, the IRS is essentially prepaying a tax credit that you usually receive when you file your taxes, said Ben Wacek, a Minnesota-based CFP and founder of Guide Financial Planning.
"If you don't usually receive a refund, then the advance payments could actually cause you to owe more when you file your 2021 taxes," he said.
There are many families who could be affected by this. If you switched to a higher-paying job, for instance, or your spouse went back to work after being unemployed for most or all of 2020, you could be in a higher tax bracket next year, which could change your tax math, said Matthew Saneholtz, a Florida-based CFP with Tobias Financial Advisors.
Also, if you sold property for a gain and therefore earned more income in 2021, you could possibly have to pay the credit back when you file your 2021 tax return because you owe more taxes than the credit is worth, Saneholtz said.
If you fall into those categories or you can afford not to use the credit payments immediately, you may want to opt out. That way, you'll receive the payments as the full child tax credit when filing your 2021 taxes.
Sign up now: Get smarter about your money and career with our weekly newsletter