Permafrost thaw causes the seasonally thawed active layer to deepen, causing the Arctic to shift toward carbon release as soil organic matter becomes susceptible to decomposition. Ground subsidence initiated by ice loss can cause these soils to collapse abruptly, rapidly shifting soil moisture as microtopography changes and also accelerating carbon and nutrient mobilization. The uncertainty of soil moisture trajectories during thaw makes it difficult to predict the role of abrupt thaw in suppressing or exacerbating carbon losses. In this study, we investigated the role of shifting soil moisture conditions on carbon dioxide fluxes during a 13-year permafrost warming experiment that exhibited abrupt thaw. Warming deepened the active layer differentially across treatments, leading to variable rates of subsidence and formation of thermokarst depressions. In turn, differential subsidence caused a gradient of moisture conditions, with some plots becoming consistently inundated with water within thermokarst depressions and others exhibiting generally dry, but more variable soil moisture conditions outside of thermokarst depressions. Experimentally induced permafrost thaw initially drove increasing rates of growing season gross primary productivity (GPP), ecosystem respiration (Reco), and net ecosystem exchange (NEE) (higher carbon uptake), but the formation of thermokarst depressions began to reverse this trend with a high level of spatial heterogeneity. Plots that subsided at the slowest rate stayed relatively dry and supported higher CO2 fluxes throughout the 13-year experiment, while plots that subsided very rapidly into the center of a thermokarst feature became consistently wet and experienced a rapid decline in growing season GPP, Reco, and NEE (lower carbon uptake or carbon release). These findings indicate that Earth system models, which do not simulate subsidence and often predict drier active layer conditions, likely overestimate net growing season carbon uptake in abruptly thawing landscapes.