How to Make the Most of Your 2021 Child Tax Credit
There’s been a lot of news coverage lately about the Advanced 2021 Child Tax Credit. This article explains what the enhanced Child Tax Credit is, if you qualify for it, and when you can expect to receive your payment. For questions about eligibility, please visit this IRS website.
What is a Child Tax Credit?
The Child Tax Credit is an income tax credit granted to American taxpayers for each qualifying dependent child under a specified age. It helps taxpayers support their families by decreasing their tax liability on a dollar-for-dollar basis and is intended to help low- to moderate-income families.
What is the enhanced Child Tax Credit?
The enhanced Child Tax Credit is the part of President Biden’s American Rescue Plan Act of 2021 which was designed to quickly provide additional funds to low- and moderate-income households suffering from the financial impacts of the pandemic.
How much is the Child Tax Credit?
In 2020, the Child Tax Credit was up to $2,000 per eligible child under age 17. In 2021, the enhanced credit is $3,600 per eligible child under age 6 and $3,000 per eligible child ages 6 to 17.
Who is considered an eligible child?
An eligible child is one who is a legal dependent U.S. citizen, U.S. national, or U.S. resident alien.
Who qualifies for the expanded Child Tax Credit?
Individuals and families who claim children 17 or younger as dependents on their tax return are eligible to receive the Child Tax Credit. However, there are income requirements. To receive the full credit, taxpayers filing single must earn less than $75,000, heads of households must earn less than $112,500 per year and joint filers must earn less than $150,000 per year. Incomes above those amounts may still receive a payment but they will be reduced by approximately $50 for every additional $1,000 of income. The enhanced payments will phase out for single filers earning more than $200,00 and joint filers earning more than $400,000.
Parents who aren't U.S. citizens can receive the payments for their citizen children as long as they have individual taxpayer identification numbers (ITIN) and their children have Social Security numbers.
When will I receive my Child Tax Credit?
Families began receiving their Child Tax Credit payments on July 15, 2021 and can expect to receive them on the 15th of each month through the end of 2021. It’s important to note that families will only receive half of their eligible credit (up to $300 per month per eligible child under 6 and $250 per month per eligible child ages 6 to 17) through the monthly payments. Families may claim the other half when they file their 2021 taxes next year.
How will I receive my Child Tax Credit?
You could receive your payment via direct deposit, a physical check, or an Economic Impact Payment (EIP) debit card. If the IRS has your bank account information on file from your most recent tax return, it will likely be deposited into your bank account. If no bank account is on file, your check or EIP debit card will most likely be delivered to your mailbox.
An EIP debit card is often used when no bank account is on file and/or if the IRS wants to distribute the check quickly for various reasons.
However, families who haven't filed tax returns recently can sign up by filling out the IRS’ non-filer tool.
What if my tax status has changed since I last filed a tax return?
If you’ve recently been married or divorced, welcomed another child to your family, or experienced any other life event that may impact your tax status, you can update your information by using the IRS’ non-filer tool.
How should I spend my Child Tax Credit?
The enhanced Child Tax Credit was created and passed to help individuals weather financial hardships created by COVID-19 and make it easier to support their families. While you may spend your check as you see fit, here are some suggested ways to spend it to have the greatest impact on your wallet and your community.
- Pay Monthly Bills
If the impacts of COVID-19 have impacted your ability to work and pay your monthly bills (mortgage/rent, utilities, food, medical needs, insurance, etc.), use your check to help pay for these items.
- Build Your Emergency Savings Account
If there is one thing we can all learn from the COVID-19 pandemic, it’s that unexpected things can and do happen, which can have a negative impact on your finances. Use your payments to prepare for the next unforeseen circumstance by using it to build your emergency savings account.
- Pay Off Debt
If you can pay your monthly bills as you did before the pandemic, consider using your payments to help pay off existing debts that you have. Your future self will thank you.
If your emergency savings is up to par and your debt is paid off, consider investing your payments in a retirement savings account, such as a traditional IRA or a Roth IRA.* Again, your future self will thank you. To get started or learn more about available options, contact our Wealth Management group.
- Support Local Businesses
Pandemic restrictions forced some small businesses to limit their hours and operations and/or close temporarily. Consider supporting local small businesses by using your payments to place online orders, purchase gift cards for future use, or ordering take-out from restaurants.
Consider using your payments to support one or more of the local and national efforts related to overcoming the devastating impacts of the pandemic.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.