Why would any family choose not to claim the Child Tax Credit advance payments, starting on July 15?

The IRS has provided a mechanism for opting out, but the default is to receive the checks each month. Families that opt-out will still receive those payments; they will simply be able to claim the full amount as a lump sum on their tax returns in April 2022. Since the amount will be the same either way, however, it seems difficult to understand why a family would voluntarily delay receiving money until next year.

The Biden administration’s approach, approved in the March 2021 American Rescue Plan Act, included the novel measure of sending the payments out in advance. The rationale behind this decision was simple: it would assist with the coronavirus economic recovery by quickly providing cash relief to American families, who had disproportionately suffered worse economic outcomes during the pandemic. Because the payments are being sent by the IRS, the Child Tax Credit has sometimes been regarded as a miniature fourth stimulus check for American families.

However, the stimulus checks and the Child Tax Credit are different in one fundamental way: while the stimulus payments are tax-free, the Child Tax Credit, ironically, is not. The total amount received by the credit will be added to a family’s net income for the year.

In previous years, this has not been a problem because the credit would invariably pay for itself. However, because a significant portion of this year’s Child Tax Credit is being paid in advance, a part of it might have to be paid back in April 2022—presenting a problem if the family has already spent the funds. This has led some families, worried about a surprise April bill and willing to delay receiving the tax credit funds, to opt-out of the mailed checks.

Fortunately, the process of opting out is very simple. To do so, one must access the IRS’s online portal, enter your personal information, and submit; the process of opting out may take several days. To successfully opt-out for the month, the process must be complete at least three days before the first Thursday of the payment month. This means that it is too late to opt-out of receiving the first payment on July 15 (the deadline would have been on June 28), but to opt-out of the next payment, the deadline is August 2.

Trevor Filseth is a current and foreign affairs writer for The National Interest.

Image: Reuters.