This year’s update to the Child Tax Credit means that many parents around the country are receiving advance monthly payments for a portion of their credit, instead of waiting to receive the benefit in a lump sum after filing taxes. The change also significantly increased the amount of the tax credit from $2,000 per child to as much as $3,600 per child.
If you’re eligible for the Child Tax Credit, the monthly payments—which are deposited right to your bank account—can be a game changer as you manage child care expenses and household budgeting. The monthly payments started in July 2021 and are scheduled to go through December 2021; it’s not clear yet whether the credit will be extended into 2022.
In the meantime, how should you spend your monthly credit to make the most of the boost to your bank account? Here are a few ideas to consider:
- Offset family expenses.
Many families have struggled to make ends meet in the fallout of the COVID-19 pandemic. The monthly Child Tax Credit payments can help you stay afloat with child care costs, school supplies and other expenses, whether your dependents are toddlers or teenagers. You may also want to use the money to pay down “toxic” debt, such as credit card debt or high-interest loans.
- Invest in your children’s education.
If you’ve been meaning to open a 529 plan or start saving for college, the monthly child tax credit offers a great way to grow your child’s educational nest egg. When your monthly payments arrive, transfer the money right into your child’s 529 plan or a separate account earmarked for education expenses.
- Don’t touch it—because you might have to pay it back.
In some cases, the government might send too much money for some families’ monthly Child Tax Credit payments. If this happens to you, you may be required to pay back some or all of your credit. This can occur if you earn significantly more in 2021 than you earned on your 2020 tax return. If you’re concerned about overpayment, you can opt out of the monthly payments altogether.
Questions? To learn more about the advance Child Tax Credit payments, including your eligibility and to update your bank account or mailing address, visit the IRS website.