The monthly child tax credit is a part of the American Rescue Plan the government signed into existence in March of this year. The new child tax credit gives parents a tax credit of $3,000 for children over the age of 6 and under 17-years old and $3,600 for children under 6-years old.

The monthly child tax credit, however, gives parents advance access to the credit in monthly installments. This means $300 a month for children under 6-years old and $250 a month for children between 6 and 17-years old.

It sounds great, but here’s what you must know.

You may not Qualify for the Full Child Tax Credit

Next year when you’re completing your tax returns for 2021, you may find that your child tax credit phases out if you make over $75,000 as a single-filer, $112,500 as head-of-household, and $150,000 if you’re married filing jointly. 

Since the IRS doesn’t know about your increased income yet, since you didn’t file your 2021 taxes yet, you could end up with an unpleasant tax surprise (owing taxes) when you file.

You can’t get Credit for 18-Year Olds

If your child turns 18 at any point during 2021, they aren’t eligible for the tax credit. The IRS has this information and ‘shouldn’t’ send you the advance, but if they did, you’d end up owing the money back at tax time.

If you take the advance (not opting out), make sure you aren’t receiving money for the new adult in your house.

You Won’t Receive the Full Credit

The tax credit monthly payments only total half of the tax credit you can receive (if you’re fully eligible). You’ll receive the other half when you file your taxes. For example, if you have a 5-year old, you’ll receive $1,800 total between July and December 2021. You’ll receive the remaining $1,800 when you file your taxes.

You can Opt Out

You aren’t required to receive the child tax credit advance, and for many people, it’s best to opt-out. If you regularly owe the IRS tax time, you may want to reconsider taking the monthly payments instead of opt-out.

Head here to opt-out. You must create an account and scan the proper ID to prove your identity. If dealing with the less than user-friendly app doesn’t sound enticing, you can call the IRS too, but as we all know, that requires an extra dose of patience and time. 

You must opt-out 3 days before the first Thursday of the month, and you have a new opportunity to opt-out every month up until December.

Final Thoughts

If you aren’t sure if you should opt out of the monthly child tax credit, talk to your tax advisor or opt-out as a precautionary measure. Opting out doesn’t mean you can’t get the tax credit – you’ll get the full credit if you’re eligible when you file your taxes. It’s better to be safe than sorry – you’ll receive a larger refund rather than owing the money back if it turns out you aren’t eligible, or you made too much money.