In just two weeks, many parents will receive their fourth advance child tax credit payment — with nearly 35 million households pocketing the last early payout.
These payments, which amount to family stimulus checks, started in July to give families a little extra in their bank account to help buy groceries, cover household bills or pay down debt.
But some people who claim a child or multiple kids as dependents would be wise to opt out of their last few advance payments. If the following reasons apply to you, you’ll want to act fast to ensure you get your changes in before the window closes in a matter of days.
A recap of how the tax credit works
An expanded child tax credit was included in the COVID relief measures in President Joe Biden’s March $1.9 trillion economic stimulus package.
For each child ages 6 through 17, households receive up to $3,000, and kids under 6 net up to $3,600 for their families. The IRS is paying out half of the tax credit through monthly checks or bank deposits of up to $300, depending on your income, from July to December on or around the 15th of the month. And the rest will be available to parents in the form of a tax refund when they file their taxes next spring. Couples earning $150,000 or less, or individuals making up to $75,000, are eligible for the maximum payments. People who earn more and typically qualify for a child tax credit get reduced early payouts.
Most parents haven’t had to do anything to receive their money, but some households that don’t typically file taxes because of the lower income rates do have to register for the credit through the IRS child tax credit update portal.
Through the update portal, you can also update your mailing address or banking information. And it’s there you can also opt out of advance payments.
Reasons you may want to opt out
Even if you’ve already received the first three payments, the government allows you to skip the final three.
Because the monthly checks work as advanced payments on the tax credit you would normally receive from your 2021 tax filing, every dollar you receive reduces the amount you can claim on your taxes next year.
Eligibility for the credit is based on your most recent tax return, which is the one from 2020 for many people.
But if your situation has changed in the past year, whether your income increased or someone new has claimed your child as a dependent, some households could face a big tax bill next year.
In those cases, opting out of payments for the rest of the year could help offset what you owe the IRS.
Alternatively, some families who can afford to live without their monthly checks may decide they’d rather receive a big refund check to help cover household expenses or simply to splurge on something fun next year.
But time is limited to opt out
For each monthly payment, the IRS sets a deadline for parents to update their preferences or personal information. For the Oct. 15 payments, families have until Oct. 4 to make changes. However, the IRS will close the child tax credit portal after Oct. 15, which means if you want to opt out of your last few payments, you only have a small number of days left to get your changes in. The IRS provides an FAQ guide about why you might want to unenroll.
And with married couples, the IRS has clarified that both spouses must unenroll. If just one spouse opts out, the household will still receive monthly payments — but for half the normal amount.
What to do if you need a little extra stimulus
If you’re still coming up short despite the monthly tax credit payments, or if your household isn't getting them because you've opted out or you earn too much to qualify, here are a few ideas to essentially make your own family stimulus check.
Deal with your debt. Credit cards may be convenient, but they also come with expensive interest. If you’re buckling under your load, tackle it by folding your balances into a single debt consolidation loan. You’ll have only one payment to budget around, and the lower interest rate will slash the cost of your debt to help you pay it off faster.
Trade in your mortgage for a cheaper model. If you own your home and haven't refinanced in the past year, what are you waiting for? A recent Zillow survey found that nearly half the homeowners who've taken advantage of the pandemic's rock-bottom mortgage rates are saving $300 a month or more. Thirty-year mortgage rates are under 3% again, so gather several mortgage refi offers and see how much you might save.
Cut your insurance costs. You might easily be paying hundreds of dollars too much for car insurance every year if you haven't looked around for a better rate lately. A little comparison shopping could help you find a much cheaper policy. And you can use the same strategy when the time comes to renew or buy homeowners insurance.
Turn your pennies into a portfolio. You don’t have to have much money to earn returns from today’s red-hot stock market. In fact, a popular app can help you invest just your “spare change” from everyday purchases into a diversified portfolio.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.