What Is the Child Tax Credit? How to Opt Out, Amount of Direct Payments

Child Tax Credit money is set to go out next month, and those who are looking to opt out of the direct payments need to inform the IRS of their decision.

The American Rescue Plan, a $1.9 trillion relief package, increased the amount of the Child Tax Credit and instructed the IRS to send the payments out on a monthly basis. Those payments will begin July 15. The IRS has released two new tools for taxpayers to check their eligibility and to choose to receive their credit amount as a lump sum after they file their taxes next year, as has traditionally been the case.

On Wednesday, the IRS released the Child Tax Credit Eligibility Assistant, a tool that gives taxpayers a way to determine if they qualify for the increased credit. To determine eligibility, taxpayers will need their 2020 tax return, their 2019 return if they haven't filed for 2020 yet or income statements to determine their income.

A second tool, the Child Tax Credit Portal, gives taxpayers a way to unenroll from the monthly payments. Those who think they might not qualify for the credit because of changes in income, a move out of the country or because their child is claimed by someone else may want to unenroll. Otherwise, they could be required to repay the money they receive.

child tax credit opt out payment amount
The IRS has unveiled a new portal that allows taxpayers to opt out of the Child Tax Credit direct payments. Peter Dazeley/Getty Images

The IRS is also providing the portal as a way for taxpayers to check their payment history and adjust bank account information. Accessing the tool requires a person to have an IRS username or an ID.me.account. Those without an account will have to verify their identity with photo identification on ID.me.

"The Update Portal is a key piece among the three new tools now available on IRS.gov to help families understand, register for and monitor these payments," IRS Commissioner Chuck Rettig said. "We will be working across the nation with partner groups to share information and help eligible people receive the advance payments."

The traditional Child Tax Credit allows taxpayers to claim $2,000 for each eligible child they list as a dependent on their tax return. To help offset the financial burden of the coronavirus pandemic, Congress voted to increase the Child Tax Credit to $3,600 for children under the age of 6 and $3,000 for children between 6 and 17.

The monthly payments will be worth one-twelfth the total amount a taxpayer is estimated to be owed. They'll be worth $250 or $300 depending on the age of the child and will continue to be issued through December. The remaining amount that a person is owed will be paid after filing a 2021 tax return next year.

Not all parents are eligible for the expanded tax credit, though. To qualify, an individual must have an adjusted gross income under $75,000, and joint filers can only earn up to $150,000. Those with incomes above that will receive a reduced payment, but not below the standard deduction of $2,000 for individuals with incomes below $200,000 and joint filers with incomes below $400,000, which is the income threshold for the deduction.