In the circumpolar north (45-90°N), permafrost plays an important role in vegetation and carbon (C) dynamics. Permafrost thawing has been accelerated by the warming climate and exerts a positive feedback to climate through increasing soil C release to the atmosphere. To evaluate the influence of permafrost on C dynamics, changes in soil temperature profiles should be considered in global C models. This study incorporates a sophisticated soil thermal model (STM) into a dynamic global vegetation model (LPJ-DGVM) to improve simulations of changes in soil temperature profiles from the ground surface to 3 m depth, and its impacts on C pools and fluxes during the 20th and 21st centuries.With cooler simulated soil temperatures during the summer, LPJ-STM estimates ~0.4 Pg C yr-1 lower present-day heterotrophic respiration but ~0.5 Pg C yr-1 higher net primary production than the original LPJ model resulting in an additional 0.8 to 1.0 Pg C yr-1 being sequestered in circumpolar ecosystems. Under a suite of projected warming scenarios, we show that the increasing active layer thickness results in the mobilization of permafrost C, which contributes to a more rapid increase in heterotrophic respiration in LPJ-STM compared to the stand-alone LPJ model. Except under the extreme warming conditions, increases in plant production due to warming and rising CO2, overwhelm the enhanced ecosystem respiration so that both boreal forest and arctic tundra ecosystems remain a net C sink over the 21st century. This study highlights the importance of considering changes in the soil thermal regime when quantifying the C budget in the circumpolar north.