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Maximizing the Child Tax Credit: Tips for Financial Stability

Child Tax Credit: Everything You Need to Know

If you have children under 18 years of age, you may be eligible for the Child Tax Credit. The Child Tax Credit is a financial assistance program that helps low and middle-income families offset the cost of raising children.

In this article, well discuss the spending habits associated with the Child Tax Credit, as well as the monthly payments that are available.

Child Tax Credit Spending Habits

The Child Tax Credit is designed to help families cover the cost of raising children. Families spend the money they receive in different ways, with some focusing on necessities, while others spend it on other expenditures.

Spending Categories

While there are numerous spending categories that may be favored when it comes to Child Tax Credit monies, the most common include food, clothing, housing, and utilities. These expenditures are considered necessities, and the Child Tax Credit is designed to ease the financial burden that families feel when providing for their children.

Other

Spending Categories

In addition to the four primary spending categories, families may also use Child Tax Credit money for vehicle payments, debt payments, education, childcare, recreational goods, transportation, after-school programs, savings, and charitable donations. So, depending on the familys circumstances, they may choose to spend part of their child tax credit money on other expenses beyond the essentials.

Spending Habits by State

State-level spending differences vary in part based on cost of living, but spending on necessities tends to be somewhat consistent. For example, families may spend more on housing in places like New York or California compared to states like Texas or Florida.

Similarly, the amount of money allocated to food, clothing, and debt repayment may vary somewhat by state. Savings habits also vary by state, with some areas being more frugal with their Child Tax Credit money.

Child Tax Credit Monthly Payments

The

Child Tax Credit Monthly Payments are an alternative to taking the Child Tax Credit when filing taxes for the year. The payments were authorized by the American Rescue Plan Act and will run from between July 2021 through December 2021.

Payment Amounts and Eligibility

The monthly payments will be $300 per month for each child under the age of 6 years of age. If the child is aged 6 to 17, the monthly payments will be $250 per month.

The total amount that a family can receive per child is $3,600 for children under the age of 6 and $3,000 for children aged 6 to 17. Importantly, these funds will be fully refundable from the standpoint that you can expect to receive the maximum amount of the tax credit regardless of whether you owe taxes.

Statistics on Monthly Payments

In total, the

Child Tax Credit Monthly Payments will impact 39 million households with 65 million children. This is estimated to cover around 88% of families with children.

The monthly payments will range from $250 to $300, depending on the age of the child. The payments will begin in July 2021 and run until December.

Collection of Other Half of Payments

Although July to December 2021 payouts are half of what you can expect from the Child Tax Credit in 2021, the remainder of the tax credit when income taxes are filed for tax year 2021 will be collected starting in 2022. In essence, you should expect to see your refund or to owe less to the Internal Revenue Service on your 2021 taxes filed in Spring 2022.

Conclusion

The Child Tax Credit is a benefit that can help families manage the high costs of raising children. The payments can be used for necessities like food, housing, clothing, and utilities.

However, the tax credit is flexible enough to be used for a range of other family needs. The monthly payments serve as a great opportunity to provide a more predictable flow of revenue instead of having to wait for tax season.

Families should plan accordingly and use this additional money in a way that is both sustainable and aligns with their financial goals.

Sources

Center On Budget and Policy Priorities, American Rescue Plan Act Invests $160 Billion in Families with Children, September 8, 2021.

IRS.gov, Advance Child Tax Credit Payments in 2021, accessed September 9, 2021.

Wall Street Journal, Monthly Child Tax Credit Payments Begin, Ellen Byron and Richard Rubin, July 15, 2021.

The Balance, How Will the 2021 Child Tax Credit Work?, Kimberly Amadeo, August 30, 2021.

American Rescue Plan Act (ARP): Benefits for Families

In March of 2021, the American Rescue Plan Act (ARP) was passed by the US Congress. The act provided $1.9 trillion in financial assistance to help mitigate the economic effects of the COVID-19 pandemic.

The ARP included new policies, stimulus packages, enhanced unemployment benefits, small business aid, and more. In particular, the ARP also included an expansion of the Child Tax Credit, which is the largest expansion of the credit ever.

Details of ARP

The American Rescue Plan Act (ARP) is a one-year expansion of the Child Tax Credit. The expansion includes a larger credit and more eligible families for this credit.

Additionally, the tax credit is now fully refundable, meaning that families can receive the full credit amount even if it exceeds their own tax liability.

Impact of ARP on Working Families

The American Rescue Plan is designed to help working families that struggled during the pandemic. Under the new law, the Child Tax Credit was expanded, providing most working families $3,000 per child and most working families $3,600 per child age six and younger.

Furthermore, the Child Tax Credit is now available as an advance payment, making it easier for families to budget.

In addition to the increased amounts for credits, the ARP made the credit fully refundable, meaning that low-income families have a greater chance of receiving the maximum amounts.

Families can opt out of the advance payments or choose to defer the advance payments and receive the credit on their income tax returns.

Use of Child Tax Credit Money

The Child Tax Credit is a means-tested credit, targeted toward families with low or moderate income. The intent is to expand the resources that parents have to provide for their children.

The Child Tax Credit can help families become more financially stable, pay for bills, and provide for their childrens needs.

Overall Spending Habits

Families may use the Child Tax Credit money for a variety of different expenses, including food, clothing, housing, and utilities. Beyond the necessities, families may choose to use the credit for vehicle payments, debt payments, education, childcare, recreational goods, transportation, afterschool programs, savings, and charitable donations.

While there is no single “right” way to spend the Child Tax Credit, the goal of the credit is to provide relief to families who have higher financial pressures due to child rearing and other costs associated with daily living.

State-Level Spending Differences

One interesting aspect of the use of Child Tax Credit funds is that it varies from state to state. State-level spending differences are often influenced by factors such as the cost of living, the size of the family, and income levels in each state.

For example, families living in urban areas may spend more on housing, while families living in rural areas may have more reliable transportation costs. Other factors can also influence spending trends, such as regional differences in debt repayment habits.

Spending Habits by Purpose

The Child Tax Credit can be used in a variety of ways depending on a family’s needs and circumstances. Some families prioritize debt repayment, while others seek to build up savings to weather future challenges.

Other families may be saving for specific goals, such as a down payment on a home or a college education for their children. While there are many possible uses for the Child Tax Credit, it’s important for families to prioritize spending and use the funds in a way that leads to long-term financial stability.

Conclusion

The American Rescue Plan Act’s expansion of the Child Tax Credit is a critical step in providing financial relief to families during the challenging times of the COVID-19 pandemic. By providing eligible families with additional resources, it helps mitigate the economic effects of the pandemic on working families.

For those who receive this assistance, the key is to use the funds wisely and to prioritize the most important spending categories for their specific needs. In conclusion, the expanded Child Tax Credit through the American Rescue Plan Act is providing much-needed aid to working families during the COVID-19 pandemic.

The credit has helped families cover the cost of raising children, including necessities such as food, clothing, housing, and utilities. In addition, the expansion of the credit to more families, along with its fully refundable nature, means that families in need have a better chance of securing maximum benefits.

Although each family may use the funds differently, it’s essential to prioritize spending for specific purposes such as debt repayment and savings. Therefore, this expansion is a vital step towards mitigating the economic effects of the pandemic on working families by providing financial relief during these challenging times.

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