Child Tax Credit Payments Start Soon. What's Your Plan?

Beginning in July, most households with children under the age of 18 will begin receiving a sizable monthly check from the U.S. government. And that makes right now the best time to hatch a plan for how you will make the most of that money.

Let’s start by reviewing the significant changes to the Child Tax Credit (CTC), that are part of the American Rescue Plan (ARP) package Congress passed in March.

Before the ARP, the CTC was something you “got” when you filed your tax return. It was a credit that reduced the tax you owed. Now it is a monthly check (direct deposit) qualifying households will receive.

The monthly payment will be $300 for each child under the age of 6, and $250 for each child aged 6 through 17. That works out to a $3,600 annual benefit for each young child and $3,000 for older kids. The previous cap was $2,000.

And I think most of you with young children will be getting CTC payments.

Single parents with adjusted gross income below $75,000 and married couples filing a joint tax return with joint income below $150,000 will receive those full amounts. A smaller benefit will be paid to single parents with income between $75,000 and $95,000, and married couples with income between $150,000 and $170,000. (Higher income households won’t get a check under this ARP program, but they can continue to claim the $2,000 per child tax credit when they file their 2021 tax return. That tax break is available to single parents with $200,000 in income, and married couples filing a joint tax return with up to $400,000 in income.) For an estimate of your household’s CTC payments, you can use this online CTC calculator.

Child Tax Credit payment logistics

Monthly payments are scheduled to start hitting checking accounts in July and will continue through December. Then, the remaining six months will be paid out when you file your federal income tax return for 2021. The amount of the remaining credit will first be used to reduce any remaining tax bill you have for the 2021 year. But if you don’t owe more tax, the credit will come back to you as a tax refund.

Beyond 2021, it’s not yet clear if the program will continue. The Biden administration has expressed a desire to continue it, and there is congressional support as well. Stay tuned on that front. It’s such an important benefit for young families, it would be surprising if the program isn’t extended.

What’s your plan to make the most of the Child Tax Credit payments?

For a family with two kids under the age of 6, that’s potentially an extra $600 a month. Two teenagers yet to turn 18? That’s $500 a month.

I hope you will sit down and carefully decide what your family will use that money for. The “needs” always come first.

Even if you have been allowed to stop rent and mortgage payments during the pandemic, there will come a time when those “moratoriums” are lifted. Saving the money to put toward shelter is obviously worth considering. And you don’t need me to note that being able to feed your family and stay current on the utility bills is a worthy use, especially when it means not having to run up a credit card balance you can’t immediately pay off.

But if none of that is an issue, let’s consider some other uses.

If you have yet to build up your emergency savings account, the Child Tax Credit payments are an opportunity to make serious progress on reaching that goal.

Got the emergency fund built? Congrats. How about saving (more) for retirement?

Moms burned out by the stay-at-home, educate-at-home demands of the pandemic, you are so approved to use payments to hire some help around the house or childcare outside the home as the world reopens—to give yourself some breathing room.

You get the idea. These payments are a tremendous opportunity to work on your household’s security. (And sanity, for the overburdened moms.)

But that takes planning. If you don’t commit to specific uses now, you and I both know what’s going to happen: The money will just get spent—likely on wants, not needs. What a waste that would be.