First Round of Checks
Perhaps you were one of the millions of families across the nation that opened the mailbox this past week to discover a check from the IRS. You already received your tax refund, and you thought stimulus checks had come to an end. Upon investigating, you realized this is the first in a series of child tax credit payments.
While “free” money is always welcomed, this particular wave of support has a specific purpose. Here is what you need to know about the child tax credit payments.
The Joys and Struggles
Children are one of the greatest joys life can bring, but there’s no doubt they can cost a fortune. Unfortunately, the COVID-19 pandemic made child-related financial matters more complicated. Countless families across the nation were either unemployed or their jobs had been put on hold until the workforce was deemed safe to reenter. Thus, the U.S. government stepped up to the plate to aid struggling families with stimulus checks.
While the stimulus checks were helpful, they were not specifically targeting the struggles of families with children. This is because the stimulus checks were provided to members of the workforce. So, as long as you met the required criteria to receive stimulus checks, you could spend the money any way you saw fit.
History of the Child Tax Credit
Now, the child tax credit is nothing new. In fact, it has been around for over two decades—since 1998. The original per-child cap on the tax credit was $400 in that year with plans to gradually increase to $1,000. However, various acts thereafter resulted in the permanent $1,000 per-child credit starting in 2003. Still, taxpayers meeting certain criteria and income thresholds were eligible for the additional child tax credit (ACTC) up to $1,400. Note: These amounts did not include the child and dependent care credits, which required proof of care for reimbursement.
Due to the financial struggles unleashed by the pandemic, the child tax credit was expanded. The American Rescue Plan Act of 2021 allows a fully refundable $3,000 tax credit for eligible families, with half being sent in the form of stimulus checks. Many families saw checks amounting to up to $300 per child.
So, what criteria need to be met in order to be eligible for the tax credit? There isn’t a long list of criteria, and here it is:
- Recipients must have a child or children.
- Recipients will receive $3,600 per child whose ages range from birth to 5 years old.
- Recipients will receive $3,000 per child whose ages range from 6 years old up to 17 years old.
- Credit amounts are based on 2019 or 2020 taxes. Thus, single filers who earned over $75,000 and married filers who earned over $150,000 last year will see a gradually reduced benefit.
The incremental payments began going out on July 15, 2021 and will continue through December. They are being dispersed in $300 per-child increments.
Support for Payments
Sources estimate 88-92% of American families are eligible to receive the full child tax credit, so this benefit affects many families.
Furthermore, since half of the tax credit comes as a payment, families don’t need to wait until they file taxes to see the benefit. Still, the remaining half of the benefit will be applied to the 2021 taxes due to be filed next year. Many people appreciate that they get the now-and-later benefit of the credit.
For those who filed 2019 or 2020 taxes or who signed up for stimulus checks with the Non-Filer tool on the IRS website, payments happen automatically. That’s good news because it means people don’t have to jump through hoops to receive the payment.
Additionally, it’s not even required that people file taxes in order to receive the credit. Those who wish to receive the payment can also do so going forward through the Non-Filer tool.
Opposition of Payments
Now, even though the tax credit undoubtedly helps many families, no good deed goes unpunished. In other words, there are certain lawmakers who argue they anticipate a negative side to providing stimulus checks.
For starters, some worry about the sustainability of this credit, since it is provided to all families meeting requirements, and not just taxpayers.
Next, some think the checks will not be used for child-related purposes. In other words, some people worry parents will spend the funds on things that don’t pertain to a child’s needs.
Another thing opposition argues is that the checks might keep people from seeking or keeping employment because they won’t be motivated to work with “free money” coming in.
Making the Best Use of the Child Tax Credit Payments
Whether or not you agree with tax credits, there are always responsible ways to use the money. Considering this is called the “child” tax credit, it is wise to look at your budget and spend the money for child-related purposes.
But what does that mean? Well, no one can tell you what to do with your money, but using the money for specific things like (healthy, immune-boosting) food, school clothes or supplies, and medical needs are obvious places to allocate the funds. This way, you can redistribute funds you would have spent in those areas, and maybe even put anything remaining into savings. After all, none of us saw this pandemic coming, and who doesn’t wish we had better prepared for this “rainy day?” Remember, even though the new administration is pushing to extend the credit through 2025, nothing is ever guaranteed.