lisegagne | E + | Getty Images
Parents eagerly awaiting the start of monthly child tax credit payments on July 15 should start planning now how they will use the extra money.
The child tax credit was bolstered by the US bailout, enacted by President Joe Biden in March. The new enhanced credit increases the annual benefit per child aged 17 and under to $ 3,000, from $ 2,000 for 2021. It also provides an additional benefit of $ 600 for children under 6 for the year of taxation 2021.
The full extended benefit is available for all children aged 17 and under in families whose adjusted gross income in 2020 is less than $ 75,000 for lone parents and $ 150,000 for a married couple filing jointly, and ends for individuals earning $ 95,000 and married couples jointly filing $ 170,000 (although they would still be eligible for the regular child tax credit.)
More from Invest In You:
How to get a monthly tax credit for children without a permanent address
Lack of workers hinders the ability of small businesses to meet demand
How this 26-year-old TikTok creator earns over $ 100,000 a month
Monthly payments could reach $ 300 per month for children under 6 and $ 250 per month for those aged 6 to 17 for families eligible for full credit. For now, monthly payments are expected to continue through the end of the year, with families claiming the remainder of the credit when they file their 2021 taxes in 2022.
It is a large amount of money that many families receive each month. Those waiting for payments should start thinking now about what to do with the windfall, according to Tania Brown, a certified Atlanta-area financial planner and coach at SaverLife, a nonprofit focused on business. saving.
“Once the money comes in, the emotions take over,” she said. “Have a plan of action.”
Schedule monthly payments now
Thinking ahead of how they’ll use the extra money each month can help families get the most out of the money, Brown said.
“I would start to think now about what their plans [are] for the money, ”Brown said, adding that the last thing she would want is for families to come to the end of the year – when monthly payments are supposed to end – and feel they have little to show for help.
As with any tax refund, there is no limit on how families can spend the money they receive from the child tax credit, giving people a lot of leeway in deciding how to spend it. The extra money may help them the best, depending on their situation.
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 anti-poverty nonprofit. .
“Families know what they need, and families’ needs change from week to week,” Foster said, adding that common needs can include paying for car repairs, child care, rent, food and more. “It’s the type of support that comes without any strings attached.”
How will families get credit
In addition to planning how to use the extra money each month, families need to make sure they know how they are receiving the credit. For about 80% of families, the money will be deposited directly into the same account they told the IRS to use for their tax refund for 2020, the agency said.
Others who did not select direct deposit when filing their 2020 income tax return will receive either a paper check or a debit card, according to the IRS.
Families who still haven’t filed 2020 tax returns but would be eligible for the credit should make sure to submit their tax information to the IRS, even if it’s after the official deadline. This ensures that the IRS has the most recent information about your family and where to send the benefits owed.
The timing of payments may change
One important thing for families to remember is that the enhanced child tax credit and monthly payments will only last for one year, with monthly payments starting in July and ending in December.
“It’s going to be a game-changer for families starting in the summer, but it’s temporary,” Foster said.
After that, the remaining credit will be claimed when filing a 2021 tax return and will come as a lump sum with the rest of what the family owes to the IRS. This will likely change the way they should budget for funds – families may have to find their own ways to save effectively so that credit can come in handy over time.
Of course, it is also possible that new legislation will extend credit further. The Biden administration’s proposed U.S. Family Plan would extend the enhanced benefit until 2025, and a group of other Democrats are pushing for credit and monthly payments to become a permanent benefit.
To see how much you could expect to receive, personal finance website Grow created a calculator this takes into account your filing status, your annual income and the number of dependents you have.