News: Monthly Child Credit Payments Coming July 15

The American Rescue Plan, which President Joe Biden signed into law in March, included a stimulus check for most Americans and a boost for 39 million households with children.

The plan increased the child tax credit (CTC) from $2,000 to $3,600 for children under 6 years old and up to $3,000 for children 6-17 years old. This could help reduce parent’s tax burden in the future. 

The more immediate news is that up to 50% of the CTC is advanceable as monthly payments from July through December 2021. This will result in monthly payments of $300 for each child under 6 years old and $250 for each child aged 6-17. 

Individual tax filers earning $75,000 or less and joint filers earning $150,000 or less will receive the full credit and the full monthly payments. The monthly credit amount will decrease as income increases, completely phasing out at $95,000 for individual tax filers and $170,000 for joint filers. 

The monthly child tax credits are set to start arriving July 15 and will deposit on the 15th of each month — unless the 15th falls on a weekend or holiday — so now’s the time for parents to start planning on how to use this extra cash.

Below, we’ll go into more detail about these payments and how you might use them to get out of debt or save for the future. 

How the Payments Will Arrive

Much like the stimulus checks, there’s some confusion as to how these monthly payments will arrive. But, like the stimulus checks, most people will see them in their bank accounts where they received their 2020 income tax refund checks. 

If you didn’t receive an income tax refund check but received a stimulus check, the IRS will deposit the money in the same account where you received the stimulus check. 

If you haven’t filed a return or received a stimulus check, the IRS will fulfill these payments the same way it did the stimulus check: via paper checks or prepaid debit cards. 

How the IRS Will Determine Payment Amounts

The IRS will base monthly payments on 2020 tax returns. If you haven’t filed your 2020 returns in time for the payments to begin, it’ll base them on your 2019 returns. 

If there was a significant change in income or if you had a child during or after 2019, you should complete your 2020 income taxes as soon as possible to get the correct payment amount. 

How to Decline Monthly Payments

The monthly payments are advances on the increased 2021 CTC. Because you are taking an advance on a tax credit, you may choose to decline the advanced payments if you know your household income or tax situation will change in 2021.

Alternatively, maybe you prefer to get your increased CTC in one lump sum at tax time. This could be another reason to decline the monthly payments. 

The IRS hasn’t released its opt-out method yet, but it assures on its website that there will be a way to decline the advanced payments.  

Using This Extra Money

In 2020, the average family had 1.93 children. Rounding that up, this means the average family could get between $500 and $600 per month. With the median household income in the U.S. sitting at $78,500 — or $6,541 per month — that’s a 7.6% to 9.2% increase in monthly income for the rest of 2021. 

For lower-income households, this could be a far more dramatic increase. 

Here are a few ideas for this extra cash. 

Making ends meet

Primarily, this extra money is to help families make ends meet. If you’re struggling to pay bills and keep food on the table for your family, this is likely where you’d want to direct the cash. 

Accelerating debt repayment

If you’re working on paying off debt, this extra cash could make a significant impact. Even at the lowest $250 per month, that’s still $1,500 in extra payments on your debts for the rest of 2021. 

Padding an emergency fund

No debts? Perfect. Time to make sure you have a 3- to 6-month emergency fund saved up. If you’re still building this fund, this extra cash can help accelerate your savings. Even at the lowest monthly payment — $250 per month — you can stack an extra $1,500 on top of your 2021 savings. 

Investing in retirement

All set on debts and emergency savings? Consider funneling these monthly payments into your IRA or other retirement savings and watch the compounding interest work its magic. If a 30-year-old invests an extra $1,500 this year and leaves it untouched, it could be worth over $13,000 by the time they’re 62 years old at a 7% return rate, according to Calculator.net. 

Extra Monthly Payments are Coming; Now’s the Time to Prepare

Oftentimes, windfalls like this come unexpectedly, leaving us little time to prepare. Fortunately, you know when these payments are coming, how much you’ll get, and for how long, giving you time to decide how to use it. 

Whether you use it to make ends meet, pay off debt, or save for the future, now could be a good time to figure it out before the payments start arriving on July 15. 

Preparing for other big money moves in 2021? With Tally, you use smart tools to pay down debt faster.