Monthly Child Tax Credit Payments Begin July 15th
Starting July 15, eligible parents with children under age 18 will start receiving monthly payments from the government through the Child Tax Credit. With these payments set to begin soon, Boone Bank & Trust Co. is offering tips on how to use these funds to improve your family’s financial position.
While the CTC itself isn’t new, it has been expanded. Previously, the credit was up to $2,000 per qualifying child under the age of 17 and it was credited on income tax returns. Through the American Rescue Plan Act of 2021, Congress expanded the CTC for 2021 only. This year, families claiming the CTC will receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021. They will receive $3,600 per qualifying child under age 6 at the end of 2021.
Another new aspect to the CTC is that it includes advance monthly payments starting in July. Those payments will total 50% of the entire credit and will amount to $300 per child under the age of 6 and $250 for children ages 6-17 as of Dec. 31, 2021. The amounts are reduced and eventually phased out based on the total income of a household. The reductions begin for incomes above $150,000 for married taxpayers filing jointly and qualifying widows and widowers. It also starts phasing out at $112,500 for heads of household and $75,000 for all other taxpayers.
For example, a married couple filing jointly that has a 5-year-old and a 3-year-old with a combined income of $125,000 would receive $600 per month along with a credit of $3,600 on their 2021 income tax return. The monthly payments will be sent the same way the government’s economic income payments were distributed.
What to Do With the Extra Money
An additional $600 per month — as in the example above — can be a substantial increase in monthly income. It represents a golden opportunity to put your family in a better financial position. Following are four ideas to consider.
Eliminate debt — If you have bills you’ve been struggling to pay down, that extra money can help get you on track.
Use it on child care expenses — While the extra cash likely won’t cover all day care expenses, it can help reduce the amount you’re pulling from your regular budget, leaving more for you to put toward debt or into savings.
Save it for your child’s education — If you look at the money as being earmarked for your children and are in a solid financial position, consider using it to open a 529 college savings account. That money can give you a solid start in saving for your child’s postsecondary education.
Add it to your emergency fund — Most experts suggest having an emergency fund of three to six months’ expenses. If your emergency fund is below that level, this money can help you build a cushion should you need it in the future.
To learn more about the Child Tax Credit, visit https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.