Taxes and deductions can be complicated, especially when tax credit eligibility constantly changes. For families with children, understanding what child tax credit assistance is available and how it will be distributed provides helpful insight on how best to optimize personal finances.
Recent changes to the Child Tax Credit expand its reach to help more families for the 2021 tax year. Advance payments, based on 2020 returns, began rolling out in July 2021 and 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 born in 2021 and under 6 years of age at the end of 2021 could receive up to $3,600 per qualifying child.
The increased credit amounts are phased out for incomes exceeding $150,000 for married taxpayers who file jointly and qualifying widows or widowers, $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. Opting out of advance payments means qualified taxpayers will not see a payment until after their taxes are filed in 2022.
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 – Half the amount received is paid monthly from July until the end of 2021, so don’t assume it’s a lump sum. The other half will be delivered after filing 2021 tax returns in 2022.
- Make sure your financial foundation is solid – Do you have a sufficient emergency fund, the right insurance, and a plan for paying down debt? Those should be the first steps to be taken with any extra money received. 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.
- It’s okay to spend – Still not sure what to do with the Child Tax Credit? It’s been a long, tough year for everyone; it’s okay to spend some of this extra money on your family, once your priorities are covered. And, when in doubt, you can always decide to save or invest.