IRS child tax credit: Do I need to pay it back? Should I opt out? Your questions answered

The new child tax credit is complicated. Which children? Credit on what? Taxes change how? If you still have lingering questions (and you probably do), here are a few things to know.

Is this basically stimulus for parents?

No. The stimulus checks were free money from the government, with no strings attached. This is a tax credit.

How does a tax credit work?

First, understand that taxes are involved here only because they’re the mechanism through which politicians can financially impact Americans. That’s why our tax code is so snarled. The child tax credit has been around for a while, previously set at $2,000 per child (for most families). This new incarnation is the same gist, but they will appear as advance payments from the Internal Revenue Service.

What the hell is an advance payment?

Money that arrives early. In this case, during the tax year itself. U.S. tax credits are typically paid retrospectively, the following spring when you file your taxes for the prior year. These payments will arrive in monthly installments, during the tax year itself.

Do I have to pay them back?

No. If you’re eligible for the child tax credit, the money is yours to keep. This is true even if you don’t earn enough to file taxes. (There is a special online portal just for non-filers.)

Is there any circumstance under which I might need to pay back the money?

Yes! If your eligibility for the payments will change since the last time you filed taxes. For example, if your children lived with you in 2020, and in 2021 they do not, you would need to return any funds received this year. If that’s you, consider unenrolling.

When are the payments coming?

On the 15th of each month, from July through December, except in August, when the pay date is August 13.

Remind me who’s eligible?

Parents who earn up to $150,000 for a couple or $112,500 for a single parent will receive $3,000 for children under 18, and $3,600 for children under age 6. The amount lowers on a sliding scale, down to $2,000, for parents who earn more (up to $400,000). You don’t need to think too hard about this. Here is an IRS tool to determine your eligibility here.

So I will receive the full amount between now and December?

Nope. Further complications: Because the program is starting midyear, the Treasury will only pay you the July to December portion (50%) in monthly installments (up to $300 per child). The other half will be paid as a credit after you file your 2021 taxes.

Can I opt out?

Yes. If you’d prefer to receive the total amount in 2022 (rather than seven payments), as a credit toward your 2021 taxes, you can go to the online portal on the IRS website, and click on “Unenroll from Advance Payments” at the bottom of the screen. Note that parents who file jointly both need to opt out—otherwise half of the payment amount will appear monthly.

Why on earth would I opt out?

Lots of reasons. Good ones include a large tax bill coming your way for 2021 to which you’d like to apply that credit; your tendency to spend cash in hand; your changing family circumstances, such as a new child, and a desire to explain that to the IRS just once when you file your 2021 taxes.

If I opt out, will I definitely receive the full amount?

Good question. You will receive a refund for the full amount after you file your 2021 tax return, but if you owe 2021 taxes or carry previous tax debt, the credit may be used to offset those debts.

Can the credit be garnished?

Yes. The details are too confusing for mere mortals, but the IRS takes a crack at topics like garnishment, spouse debt, and child support here.