Parents receiving a new $ 3,000 tax credit should do so with the money
wera Rodsawang | Moment | Getty Images
Good news for parents: Millions of American families with children will start receiving monthly payments from the Extended Child Tax Credit starting July.
Payments could be up to $ 300 per month for children under 6 years old and around $ 250 per month for children 6 to 17 years old. Currently, they are slated to continue until the end of the year. Families will claim the remainder of the loan when they file their taxes for 2021 in 2022.
This is a significant part of the money many families receive each month. Those expecting the payments should start thinking now about what to do with the windfall, according to Tania Brown, certified financial planner and coach at SaverLife, a nonprofit focused on saving.
“As soon as the money comes in, the emotions take over,” she said. “Have a plan of action.”
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The child tax credit was sponsored by the American rescue plan, signed by President Joe Biden in March. The new extended credit increases the annual benefit per child aged 17 and under from USD 2,000 in 2021 to USD 3,000. There is an additional benefit of $ 600 for children under 6 years of age for the 2021 tax year.
Full Extended Benefit is available to all children under the age of 17 in families with 2020 Adjusted Gross Income of less than $ 75,000 for a single parent and $ 150,000 for a married couple applying together.
The increased credit begins to expire for higher income taxpayers and ends for individuals earning $ 95,000 and married couples who collectively earn $ 170,000.
Schedule monthly payments now
Thinking ahead of how they will use the extra money each month can help families get the most out of the money, Brown said.
“I’d start thinking about what their plans are for the money now,” Brown said, adding that the last thing she would like is for families to hit the end of the year – when the monthly payments run out – and feel you have little to show for help.
As with any tax refund, there is no limit to how families can spend the money they get from the child tax credit. This gives people a lot of flexibility in deciding how best the extra money can help depending on the situation.
This will be game changing for families starting this summer but is only temporary.
Co-chair of the Economic Security Project
This is important, especially for low-income families and those hardest hit by the pandemic, according to Natalie Foster, co-chair of the Economic Security Project, a progressive nonprofit fighting poverty.
“Families know what they need, and family needs change from week to week,” said Foster, adding that general needs can include paying for car repairs, child care, rent, food, and more. “This is the kind of unconditional support.”
The timing of payments can change
One important thing for families to remember is that the child tax credit and monthly payments are only for one year. Monthly payments start in July and last through December.
“This will be game changer for families this summer, but it’s only temporary,” said Foster.
Thereafter, the remaining loan will be claimed upon filing a 2021 tax return and paid in a lump sum with the rest of the families owed by the IRS. This will likely change the way they should budget the funds. Families may need to find their own ways to save effectively so that the loan can help over time.
Of course, it is also possible that new laws will further expand credit. President Biden’s tax plan calls for the extended child tax credit to be extended through 2025, CNBC confirmed ahead of the package’s official reveal.
Still, some Democratic lawmakers are pushing for the extended tax credits, and likely the monthly payments, to be made permanent.
To see how much to expect, the personal finance website Grow has created a calculator that takes into account your enrollment status, annual income, and the number of your loved ones.