Taxes and deductions can be complicated, especially when eligibility is always changing. For families with children, understanding the new child tax credit is key to planning for the future.
Recent changes to the Child Tax Credit have expanded its reach to help more families for the 2021 tax year. Advance payments, which are based on 2020 returns, began rolling out in July 2021. These payments will continue through December, totaling up to 50% of the Child Tax Credit. The remaining half will be delivered to taxpayers through 2021 returns. Here’s all you need to know, according to the IRS.
Families who claim the Child Tax Credit will likely see an increase in credit amounts. Eligible taxpayers can receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021. Families with children under 6 years old at the end of 2021 could receive up to $3,600 per qualifying child.
The increased credit amounts phase out for incomes exceeding $150,000 for married taxpayers who file jointly, and qualifying widows or widowers. They phase out at $112,500 for heads of household, and $75,000 for all other taxpayers.
Eligible taxpayers who would like to decline advance payments can do so. According to Yahoo Finance, taxpayers waiving the advance payments may prefer a single large payment, believe financial circumstances will change, wish to avoid the hassle of updating information in the IRS portal, or believe an overpayment by the IRS may impact the next filing return. Keep in mind that opting out of advance payments means qualified taxpayers will not see a payment until after their taxes are filed in 2022.
What to use your child tax credit for
Once you learn all about the latest updates to the Child Tax Credit and determine the amount you qualify for using the free child tax credit calculator, you will want to lean on these suggestions from CNBC.com to help you prepare.
- Know when the money is coming in. Don’t assume you are getting a lump sum. You’ll receive half the amount you are eligible for between July and December 2021. The other half will be delivered after filing 2021 tax returns in 2022. Use our mobile banking app to keep tabs on your accounts so you can see when the credits come in.
- Make sure your financial foundation is solid. Do you have a sufficient emergency fund, the right insurance, and a plan for paying down debt? If not, put the extra money towards those key areas. Keep your financial health in check, just as you would your physical or mental health. It’s important in securing your financial foundation.
- Remember the big picture. Think about your priorities and goals for the next year and determine how some extra cash could go toward realizing them. This will help you to be more intentional with your money.
Spending is OK – Still not sure what to do with the Child Tax Credit? Don’t worry too much – it’s been a long, tough year for everyone. Once your priorities are covered, it’s okay to spend some of this extra money on your family. And, when in doubt, you can always decide to save or invest.