We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. Learn more.

Mother and father helping their kids with their homework in the kitchen
Getty Images

This story has been updated to reflect new information regarding the Child Tax Credit portals on the IRS website.

Monthly payments from the advanced child tax credit will start hitting millions of families’ bank accounts on July 15. But some taxpayers may not want the money — really.

This year’s child tax credit not only boosts the amount families will get to up to $3,600 per child under 6 or $3,000 per child under 18. It also changes how parents get the money.

Rather than waiting until Americans file their taxes to give parents the credit, the new child tax credit essentially offers an advance by giving out half of the credit up front in the form of six monthly payments starting in July. More than 36 million families have been identified that qualify to receive up to $300 per child each month.

If parents don’t want monthly payments and would prefer a single larger payment come tax refund time, they can still choose that, although it might not be the best option for your family.

Research from the Center on Poverty & Social Policy at Columbia University shows a monthly allowance-type benefit like the 2021 child tax credit can help alleviate the most negative effects of child poverty. But other research tells us that we aren’t always rational when it comes to our finances. A 2015 study from the Brookings Institution indicated that the majority of Americans believe monthly tax refund payments to be less helpful than an annual lump sum.

Which is the best option for your family’s financial situation: a lump sum or monthly payments? We’ve broken down how to figure that out below, as well as how to opt out and whether or not you need to do anything to opt in:

What happens if you opt out of monthly payments?

You won’t be penalized by the IRS if you choose to opt out of monthly payments, but you also won’t be rewarded. Opting out of monthly payments simply means you’re delaying when you’ll get the extra benefit, it doesn’t mean you won’t receive it at all.

There’s also no extra tax break or interest paid out to those who choose not to take the money until the end of tax season. Basically, the IRS views all recipients the same way, the only difference is how the credit is distributed.

You should opt out of monthly child tax credit payments if…

Your income or tax situation has changed since 2020

If you or your spouse were unemployed or had a lower salary in 2020, but you have since found a higher paying job or expect to get a raise in 2021, it might be a better choice to opt out of the monthly payments.

Why? Eligibility for the 2021 child tax credit monthly payments is based on your 2020 income tax returns — but the total amount you can actually claim is calculated when you file your 2021 tax return next year. So if you’re a joint-income family that earned an adjusted gross income (AGI) of $100,000 in 2020, only to bounce back and make $160,000 (which is above the cutoff for the full benefit) by the end of 2021, it’s possible you’ll owe the IRS money come tax season if you take the monthly payments.

One option to avoid having to pay back taxes is to update your new income information using the IRS web portal. But if you don’t know exactly how much money you’re going to end up making this year and your estimates are close to the eligibility limit, it might be better to take the lump sum next year instead.

Your family usually owes money to the IRS

In certain industries — especially those where workers rely on tips or are self-employed — it's a pretty common occurrence to owe money in taxes at the end of the year. According to the most recent data from the IRS, around 14% of all income taxes collected come from individual income tax payments, meaning money that wasn't withheld from people's paycheck.

If you usually owe federal taxes or suspect you might in 2021, then you may want to opt out of monthly payments. This is because the child tax credit is designed to reduce parents' federal income tax burden by the amount of credits they can claim each year. But if you typically owe, then those advance payments may be money you'll have to repay when you file.

The math depends on how much you typically owe to the IRS. If, for example, you have one 4-year-old child and qualify for the entire benefit, taking the monthly payments would mean you'd get $1,800 through advanced payments and another $1,800 applied to the amount of taxes you owe at tax season. If you only tend to owe a few hundred dollars, then there's little risk in taking the monthly payments. But if you normally owe, say, $3,000 then you could still need to pay a significant amount even after the full credit is applied. By applying the full $3,600 credit at tax season, you'd have a better chance at cutting down the majority of what you owe, rather than taking the advance payments and then ultimately paying that money back.

You share equal custody of your children

With stimulus checks, divorced or unmarried parents with joint custody could essentially “double dip” and both claim their children in order to receive a bigger payment. This is not the case with the new child tax credit and monthly payments; if both you and your child’s other parent claim the child as a dependent and get the monthly deposits, one of you could be on the line for thousands of dollars come tax season.

In order to claim the child tax credit, your child needs to live with you for at least six months out of the year. Even if your custody agreement is completely evenly split, one parent will technically be caring for the child one day more than the other in a 365-day calendar year — and that’s who gets to claim the credit. If you and your co-parent haven’t worked out holidays, vacations, weekends and more for this year, it may be best to opt out of the monthly payments, wait until next tax season to determine who receives the benefit, and split the money once the designated parent receives their refund.

You have multiple children aging in or out of qualifying

To be clear, this is a pretty rare situation that only applies to a small group of people. But if you have multiple children moving in and out of eligibility for different amounts, you might want to play it safe. Here’s why:

Because the IRS had to roll out a benefits delivery system in just four months, there’s a chance that the rush may cause some oversight when it comes to calculating how much money to send out, leading to potential overpayments.

For example, the IRS could miss that twins listed as 17 years old on a single parent’s 2020 tax return turned 18 in February of this year, making them ineligible for the $3,000 credit (although they would still each qualify for a $500 credit). If that parent were to choose to take the monthly payments, they would have been overpaid around $2,000.

To protect low-income earners, the IRS put out a provision that allows some parents to keep any accidental overpayments that are under $2,000 per child. But the protection has income limits, and there is still a chance that some families could end up having to pay back a portion of what they were overpaid.

It’s complicated, and more of a situation that could happen rather than something that’s highly probable. In the hypothetical situation above with the 18-year old twins, for example, the parent wouldn’t owe anything if they earn less than $44,000 in 2021. But the amount they’ll need to repay gradually increases based on their income until it reaches $80,000, at which point the entire credit amount will need to be paid. The money will need to be collected either via their 2021 tax return or having that amount taken out of their refund.

Again, due to the protections in place, the likelihood that this sort of overpayment would result in a typical family owing money at tax season is small. You can also avoid the situation entirely by using the IRS’s soon-to-be-live child tax credit portal to update your family’s information before payments start being sent out.

You need to make a major payment in the spring

Even in years without the advanced child tax credit, many taxpayers use their tax refunds to cover large bills that occur during the spring. Sure, there are people who might use the money to splurge on a big vacation, but many Americans use their refunds to cover expenses like tuition payments, medical procedures with high out of pocket costs, or high-interest debt.

This one technically just comes down to preference: Nothing is stopping you from saving the monthly deposits and then combining it with the money from your tax refund to cover the cost of a major purchase or payment. But if you’re worried you might be tempted to touch the money before the big expense, then opting out of monthly payments is an option that can work for you.

You should take the monthly child tax credit payments if…

None of the previously mentioned situations apply to you

If you’re married or you have primary custody of your children, your income isn’t expected to increase to a level that pushes you out of the eligibility range and you don’t have multiple children aging in or out of different payment amounts, then there is no reason not to accept the monthly boost to your family’s finances.

Because the payments are part of a tax credit and not a welfare program like the Supplemental Nutrition Assistance Program (SNAP) or Temporary Assistance for Needy Families (TANF), there are no specific requirements for how the money is used. The benefit doesn’t need to be applied exclusively to child-specific items or services; it is an acknowledgement that raising children adds more expenses to a household, even if the extra cash doesn’t go directly toward them.

For instance, you can take the monthly payments and if you find you don’t need the extra cash assistance one month, put the money toward an emergency fund or using it to pay off debt, both of which are essential factors for keeping children out of poverty.

Money is tight during the back to school or holiday seasons

If you’re still thinking you’d prefer a lump sum, consider the months ahead when you already know money will be tight. Come August and September of each year, many families struggle to make ends meet after they’ve made all those (often required) back-to-school purchases.

According to the National Retail Federation, the average household planned to spend nearly $790 on back-to-school supplies in 2020. But the actual amount people end up spending is likely even higher: In 2019 the annual Huntington Backpack Index estimated that parents could expect to spend $1,017 for elementary schoolers, $1,277 for middle schoolers, and $1,668 for high schoolers on supplies, extracurricular fees and technology. Even if you’re able to shop on a shoestring budget, that’s a hefty financial burden to take on that could be helped by an additional $250 or $300 per child each month.

The same goes for more discretionary spending events like birthdays or Christmas. While it’s important to avoid overspending during the holiday season, just the cost of providing additional meals while your kids are on winter break, replacing outgrown winter coats or hosting family from out of town can add up.

If you tend to find yourself scrounging for extra pennies during these periods, then it’s a wise idea to take advantage of the advanced child tax credit payments.

How to opt out of monthly payments

Parents who decide to opt out will need to notify the IRS using the Child Tax Credit Update Portal, which has officially gone live as of June 23.

Does anyone need to “opt in” to monthly payments?

Monthly payments are technically the default option, meaning the majority of families do not need to do anything to start receiving them, but there are some situations that require contacting the IRS through one of the online portals it has set up, or will be setting up in the near future.

Parents and guardians need to update their tax information in order to receive the correct monthly payments if:

  • You give birth, adopt or foster a child at any time in 2021
  • Your filing status has changed (i.e. you filed as ‘single’ in 2020 but will file as ‘married filing jointly’ in 2021 or vice-versa)
  • You expect your income to be significantly lower or higher than it was in 2020
  • A child listed on your 2020 tax information has died or is no longer in your care
  • There have been any other changes that could affect your eligibility

Another portal is for families who do not typically file a tax return, usually because their gross income is less than $12,400 if they’re single or $24,800 if married. Using this portal, non-filers with internet access will be able to sign up for monthly checks and the tax refund payment by providing information about their finances, number of children and their ages.

To read more about the 2021 Child Tax Credit and how it will impact your family, you can read our guide here.

More from Money:

36 Million Families Are Getting Letters From the IRS About Changes to the Child Tax Credit

Child Tax Credit 2021: Everything to Know About Eligibility, When Monthly Payments Start and More

Why Are We so Obsessed With How Other People Spend Their Money?