The federal government is giving parents a reason to cheer. Starting July 15, 2021, parents who earn under certain income thresholds will qualify for a tax credit increase that can be paid monthly through the end of the year.
These temporary credits are part of the American Rescue Plan Act, which boosts the standard child tax credit from $2,000 to up to $3,600. Parents with children under age 6 can elect to receive $300 per month per child from July through December. Those with children between the ages of 6 and 17 can receive $250 per child. The rest of the credit will be issued when 2021 tax returns are filed.
Full benefits will be paid to single filers earning under $75,000, heads of households earning under $112,500, and married couples filing jointly earning under $150,000. The credit is reduced by $50 for every $1,000 increase in adjusted gross income. Qualification status will be based on either your 2020 tax returns or your 2019 tax returns if you haven’t yet filed your 2020 returns.
How much are you eligible for?1
For example, a single mother with an 8-year-old who earns $45,000 can opt to receive $250 a month for six months for a total of $1,500. She’ll receive another $1,500 when she files her 2021 taxes or she can decide not to take the monthly credits and receive the full $3,000 when filing her taxes in 2022.
Other eligibility requirements: You must live in the United States for at least half of the year and each child must have a Social Security number. For more information, visit the IRS Advance Child Tax Credit Payments in 2021 page.
How will you use it?
It’s a good idea to put a plan together for this money. Maybe you could pay off some credit card bills or save for a car or vacation. Don’t forget to think about opening or contributing to a 529 education savings account for your child. 529 plans offer tax-free distributions for qualified college and K through 12 expenses, give you as a parent control of the investments and distributions, and are a great way to invest in your child’s future. Be sure to speak with your financial professional, who can help you make informed financial decisions.