The first monthly enhanced child tax credit payment has landed, but some families are now opting out. Here's how to decide whether it makes sense for you.

Transcript

SARAH MCCAMMON, HOST:

Many parents all across the U.S. saw hundreds of dollars land in their bank accounts earlier this month, the first monthly payment of the expanded child tax credit. But not every parent wants that money. And some are opting out. NPR's Andrea Hsu is here to talk about why. Good morning, Andrea.

ANDREA HSU, BYLINE: Good morning, Sarah.

MCCAMMON: So what is going on? Why are people opting out of this?

HSU: Well, just to be clear, they're not turning down the money. It's all about when they get the money. And for some people, getting it now might not be in their favor. So, you know, in the past, the child tax credit would come as one lump sum when you filed your taxes. It could help offset what you owed. Or if you didn't owe taxes, you got a nice, big refund. For 2021, the government said, hey, we're going to give parents half the credit this year and the other half next year when you file your taxes. And this year's half is going out to parents in the form of these monthly payments. The next one's coming mid-August. And if you want to stop that payment, you have to opt out by Monday.

MCCAMMON: What if you're listening to this and thinking, is this a good idea for me? Why would someone opt out?

HSU: Well, some people just like to get a big check in the spring. Take Saby Montoya. She's the mom of a 12-year-old boy. Every year in the spring, she looks forward to having a big refund, which she uses to pay off bills or pay for her son's classes. Sometimes she does something nice for his birthday. So she opted out after being surprised by the first monthly payment.

SABY MONTOYA: I didn't want to keep receiving it, and then come March, April, I put in my taxes and then I don't get what I normally get in return.

HSU: But there's another important reason why some people should opt out, Sarah. The money the government is sending now, it's their best guess of how much your family is due. And that's based on your last tax return.

MCCAMMON: So it's an estimate. It could be wrong. What would that mean for families at tax time next year?

HSU: Yeah, it could be too much. And that could be a problem. I talked to LuSundra Everett of Everett Tax Solutions about this. Her advice is to think about what your 2021 return is going to look like. And if there are major changes, then consider opting out of the monthly payments.

LUSUNDRA EVERETT: You know, if you don't want to be in the position where you have to pay money back, then opting out is the safest thing to do.

HSU: So one example of this is people whose earnings went way up last year. This could be true of a lot of people who didn't work for part of 2020 because of the pandemic. Maybe they went back to work this year or got a new job. Well, the child tax credit starts phasing out when you hit a certain income level. But the IRS doesn't yet know that you're making more money in 2021. So they're still assuming you qualify for the full credit. And you could end up having to pay some of that back.

MCCAMMON: OK. So that's one scenario. Are there other situations you can think of, Andrea, where people might want to opt out of this child tax credit?

HSU: Yes. Well, another is specific to parents who are divorced who take turns claiming the children. Whoever claimed last year has probably already started getting the monthly payments. So if that parent isn't going to claim again this year, they should unenroll now.

MCCAMMON: And how does the age cutoff work? For these purposes, who's considered a child who's eligible?

HSU: So any child from birth to 17 is eligible. If your child turns 18 any time in 2021, they're not eligible. Now, if your child is turning six any time this year, the amount of credit actually drops a little bit. The IRS told me that the monthly payments going out should reflect how old your kids are. But if you have one who's turning six or 18 this year, you might just want to double check how much you got in the first payment.

MCCAMMON: And really quickly, if you want to opt out, how do you do it?

HSU: Well, it is a little complicated. You go on the IRS website. Just Google IRS child tax credit. You see a button called manage payments. Then you have to create this account on this app. You need to scan an ID and also scan your face. It's kind of glitchy, so you have to be patient. But here's another thing. If you're married and filing jointly, both parents need to opt out. If only one parent does it, you'll still get half the payment. And don't forget to enroll by Monday if you don't want the August one.

MCCAMMON: All right. That's NPR's Andrea Hsu. Thank you.

HSU: Thanks, Sarah. Transcript provided by NPR, Copyright NPR.

Tags: child tax credit  federal taxes  Economic stimulus