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Parents only have until Monday, August 2, to opt out of the next monthly child tax credit payment, which will be deposited in eligible accounts on August 13.

The majority of eligible parents were automatically enrolled into the 2021 enhanced child tax credit. Among other major changes, the new maximum amount child tax credit has been increased from $2,000 to $3,600 for each child under 6 and to $3,000 for all others under 18.

Congress also made it so that half of the credit is paid out in advance, in the form of monthly payments of up to $250 and $300 per child. So, for example, if you're married and file a joint tax return with an income below $150,000 (the maximum amount for joint filers to receive the full credit), and have two children ages 4 and 8, your monthly payments will be $550.

The first of six payments was delivered to parents' bank accounts on July 15, and the next deposit is just over two weeks away — and there is still a little time for parents to opt out if they want. It may seem counterintuitive to pass on what is essentially "free" money from the government. But opting out could be the right choice if your income primarily comes from tips that don't get reported until tax season, or if your income is close to the eligibility limit and you're worried about getting a surprise tax bill next spring.

What is the deadline to opt out of child tax credit payments?

The deadline for opting out before your next child tax credit payment can be a bit confusing. The IRS website says that in order to avoid receiving your next monthly payment, you "must unenroll 3 days before the first Thursday of next month by 11:59 p.m. Eastern Time."

Before you start trying to do the mental calculations, that means parents need to opt out of payments on the Monday before the first Thursday of the month — and if you're located somewhere other than the east coast, you still have to do it before midnight their time, rather than your own.

Thus, Monday, August 2, is your last day to opt out of the August 13 payment (and all of the following payments for 2021). If you miss this deadline, you will still be able to opt out before each subsequent payment, but you'll be too late to avoid receiving the money in August.

Married couples who want to unenroll from the advanced payments should note that in the case of joint filers, both parents must opt out by logging into the Child Tax Credit Update Portal (CTC UP) using their individual ID.me account or IRS username. If only one parent opts out, you will still receive half of a payment each month until the other one does too.

Is it better to opt out of monthly IRS payments or take the money now?

Choosing to opt out of monthly child tax credit payments and then take the lump sum at tax season may not be the best choice when you're trying to make ends meet.

For example, back-to-school season can already add pressure to a family's budget, but this year is likely to be more expensive than usual. Supply shortages and heightened demand from consumers has led the National Retail Federation to predict that 2021 back-to-school spending will reach an all-time high of $37.1 billion. If you're already shuddering at the idea of looking at your bank account for the next few weeks as you purchase school supplies, the monthly payments can be an easy way to supplement your budget and save yourself the stress of trying to make ends meet.

If you're already enrolled in a state or federal welfare program like SNAP or Medicaid, the child tax credit payments will also have no impact on your eligibility to stay in the program because they don't count as taxable income. By opting out, you could lose out on additional funds that your family might need now in order to keep a roof over your head and food on the table — though you would receive everything you're owed after filing taxes in 2021.

What happens if you opt out after receiving the July 15 payment?

Probably nothing, unless you owe an exorbitant amount of taxes at the end of the year.

In order to protect low-income earners, the IRS put out a provision that allows some parents to keep the money from any accidental overpayments that are under $2,000 per child. Those protections do have income limits, but it's unlikely that one-sixth of the advanced payments (or one-twelfth of your overall credit amount) is going to have a very severe impact on your overall tax burden.

If you do think you'll end up in a situation where you owe more taxes than the amount of child tax credits you receive, it's a good idea to stick the money from your first monthly payment into a savings account until tax season. That way when you pay the tax bill, you'll have a little extra cushion to soften the blow.

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