When you have children, they appear as dependents on your year-end tax return, defraying a portion of your tax liability. However, the federal government has taken steps to provide you with advance payments of certain credits — such as the Child Tax Credit. This pre-payment program — rolled out with the COVID-19 pandemic — supports parents across America, and they’re hoping it will continue into 2022.
As you review this information, remember that you can choose among many smart financial moves to use your child tax credit beyond spending it as soon as the check clears.
What Is the Child Tax Credit?
The child tax credit has existed for some time, but it expanded and changed with the American Rescue Plan on July 15, 2021. Since then, families receive $250 per month, per child for children ages 6 to 17. For children under 6, families receive $300 per child per month. In years before the plan was enacted, a lower amount of Child Tax Credit was available as a lump sum when the taxpayer filed individual income taxes.
Parents need not take action, and if your bank account information is current with the IRS, you can receive a direct deposit instead of a paper check.
What Can You Do With the Child Tax Credit?
You have several options when determining how to spend funds you’ve been paid from the child tax credit. Because you have so many options, you may want to disperse these funds to several places depending on your situation.
Save Your Money
You can save as much of the tax credit as possible, potentially looking at other opportunities or purchases in the future. Saving your money is simple and smart. Plus, it gives you more time to decide what you want to do with the rest of the money. Yes, you might take care of some incidentals, but you can deposit the rest of that cash in the bank right away.
Invest
Investing is a good way to grow your net worth. You can invest with a simple account that allows you to set it and forget it, or you might turn to a broker who can help you manage your money.
Pay Down Debt
When you pay down debt, you can take back your financial freedom, stop worrying about bills and raise your credit score.
Significant Purchases
You might finally have the cash available to make significant purchases. Setting aside money to replace your phone or your car may be one of the most helpful things you can do for yourself.
Buy a House
This tax credit may help you finish saving for a down payment on a new house. Right now might be the best time for you to get into a new house, or you could couple saving your money with paying down debt to get your family into a new house.
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Use Your Child Tax Credit Wisely
With this additional information, you can use the child tax credit to your advantage. The steps listed above are a great place to start for families, and you can return to Benzinga at any time for more financial information.
Frequently Asked Questions
Are they continuing the child tax credit in 2022?
At press time, Congress had not yet passed legislation to continue advance payments of the Child Tax Credit in 2022.
What is the income limit for the child tax credit?
Income limits for the child tax credit for single parents are set at $75,000. The head of household limit is $112.500, and married spouses who file jointly have a limit set at $150,000.
About Patton Hunnicutt
Patton Hunnicutt is a contributor and editor at Benzinga. He’s worked for several years on financial content, addressing issues related to personal finance, investments, retirement, and more.