Child Tax Credits as Monthly Payments – Should I Unenroll?

The IRS recently announced that its program to provide advanced monthly payments of 2021 Child Tax Credits will begin in July. They also announced the option for participants to unenroll via this link.

But why would someone choose to unenroll in this program? Here’s my two cents and the process I experienced while unenrolling.

What is the Child Tax Credit?

The Child Tax Credit is something a taxpayer typically claims when filing taxes. Qualifying taxpayers are usually allotted a $2,000 tax credit for each child up to age 16. Per the American Rescue Plan, however, the amount for 2021 increased to $3,000 for each child ages 6-17, and $3,600 for children ages 5 and under — with no limit to the number of children that can be claimed. (Not sure whether you qualify for the Child Tax Credits? Check the list of qualifications here.)

The amount you’d receive for the advanced monthly payments is half of the total credit, divided by 6. So, for example, if you have one child age 3 ($3,600) and one child age 7 ($3,000), your total tax credit for 2021 is $6,600. Divide that in half ($3,300) and then divide that amount by 6 to calculate the monthly payments of $550. You’ll receive the remaining half ($3,300) when claiming the credit on your 2021 income tax return.

Why would someone choose to unenroll in advanced monthly Child Tax Credits?

I chose to unenroll in the program because I didn’t want to have to recalculate the amount of taxes to be withheld from my paycheck to offset the tax credits. As of right now, I should receive a small refund when I file my 2021 taxes.

If I were to choose the monthly child tax credit payments and receive that money now, I wouldn’t have those tax credits at the end of the year to offset the minimal amount of taxes I’m currently having withheld from my paycheck. That means I would likely end up owing taxes come tax filing season --- unless, of course, I were to adjust my current tax withholding.

Why would someone choose to stay enrolled for the advanced monthly child tax credits?

This program was enacted to help families afford everyday expenses of kids without having to wait to file their taxes to receive the credit. And, ironically, millions of families don’t make enough money to even file taxes, so traditionally they have missed out on claiming the Child Tax Credit. Obviously, these families would want to receive monthly payments.

Those who are great with money management and prefer to invest advanced payments rather than receive any type of refund when filing their taxes may also prefer this option. And those who don’t want the hassle of unenrolling will definitely prefer to stay enrolled, as well.

Here’s what I learned about the process of unenrolling in the monthly Child Tax Credit program.

1. To unenroll in monthly Child Tax Credit payments, you have to create an ID.me user account if you don’t already have one. This, by the way, was no 30-second process. It requires you to upload and enter in all the sensitive information you would never want to be included in a security breach: the front and back of your driver’s license, your social security number, and something that felt like a biometric face scan. For all of you government conspiracy theorists, this may be enough for you to sit back and enjoy the monthly payments.
2. Both you and your spouse will need to unenroll in monthly Child Tax Credit payments. If you filed a joint return, both spouses will need to make the effort of unenrolling. In the event only one of you unenrolls in the monthly payments, the other will receive a half payment until both are unenrolled.
3. This is only for 2021. While there has been discussion of making this an ongoing option for families in the future, the Child Tax Credit is only being offered as an advanced monthly payment for calendar year 2021.
4. The unenrollment deadline is complicated. While you can only unenroll once, you have the opportunity to unenroll in the future if you neglect to do so initially. The unenrollment deadline, however, isn’t easy to remember. You must unenroll 3 days prior to the first Thursday of the month. (See the calendar above for deadlines to unenroll in monthly Child Tax Credit payments.)

Should I talk with my tax consultant about unenrolling in the monthly Child Tax Credit program?

Everyone’s tax situation is different, so you may want to consult with your tax advisor before deciding whether to unenroll in the Child Tax Credit monthly payment program. For more information, please visit the IRS website.