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For American parents, here is what you need to know.
Thanks to the American Rescue Plan Act of 2021, for tax year 2021, the Child Tax Credit is increased from $2,000 per qualifying child to: $3,600 for children ages 5 and under at the end of 2021; and $3,000 for children ages 6 through 17 at the end of 2021.
The monthly advance payments can be up to $300 a month for each child under 6 and $250 for children 6 to 17. This advance will be made in monthly installments, beginning on July 15th. You will be able to claim the other half of your tax credit when you file your 2021 income tax return in 2022.
To qualify, you — and your spouse, if you filed a joint return — must have:
Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
Provided the necessary information in 2020 to receive the Economic Impact Payment using the Non-Filers.
A main home in the United States for more than half the year (the 50 states and the District of Columbia) or file a joint return with a spouse who has a main home in the United States for more than half the year; and
A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
Made less than certain income limits.
There are other changes. Including the fact that there are now two ways in which the credit can be reduced for upper-income families. That means some parents won't qualify for a larger credit and some won't receive any credit at all. More children will qualify for the credit in 2021. And, if you have more than one kid, the credit amount could differ from one child to another.
A good way to figure out how much you will expect to receive is with this handy 2021 Child Tax Credit Calculator from Kiplinger.
If you don’t normally receive a refund when you file your taxes each year -- or don’t expect to in 2022 for whatever reason --, these advance payments could actually do more harm than good. So it’s important to know the unenrollment deadlines to stop payments ahead of each month.
You only need to unenroll once, but you must do it in time to prevent the next payment:
August - August 2, 2021
September - August 30, 2021
October - October 4, 2021
November - November 1, 2021
December - Nov. 29, 2021
If you are going to take the advance payments, there are a lot of ways you can go in using the extra funds.
Perhaps it can help with meeting basic needs like paying bills or buying groceries. These checks will help a lot of families still struggling to make ends meet right now.
Pay down debt. Whatever debts are most “toxic” -- high-interest unsecured debt such as credit cards, small-dollar loans and debt that has gone to collections -- should be your first focus.
Put it in savings. It’s not the most exciting thing, but saving for the future, or just starting an emergency fund, can help make things easier when an emergency pops up down the line.
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