By Carmen Reinicke - CNBC + Acorns
Good news for mothers and fathers: Millions of families in the United States will begin receiving the improved monthly payments of the child tax credit in July.
These payments could be up to
$ 300 a month
for children under 6 years old, and about $ 250 a month for those between 6 and 17 years old.
For now, it is planned that the disbursements will be made until the end of the year, and then the families will claim the rest of the credit when they file their taxes for the year 2021 in 2022.
It is a significant amount of money that many
families will receive on a monthly basis
.
Those waiting for payments should start thinking about what they will do with this windfall, according to Tania Brown, a financial advisor and trainer at SaverLife, a nonprofit focused on savings.
[Biden works on another billion dollar stimulus package to help families with children]
"Once the money arrives, the emotions take over," so he recommends "having a plan of action."
The child tax allowance has been given a boost thanks to the stimulus package, enacted in March by President Joe Biden.
The new improved credit
increases the annual child benefit 17 years and younger to $ 3,000
, up from $ 2,000 in previous years.
It also provides an additional benefit of $ 600 for children under the age of 6 for fiscal year 2021.
The full expanded benefit is available to all children 17 and under in families with 2020 adjusted gross income less than $ 75,000 for single parents and $ 150,000 for a married couple filing jointly.
Enhanced credit
begins to taper off for
higher income
taxpayers
and ends for individuals earning $ 95,000 a year and jointly filing married couples earning $ 170,000.
[This is how Biden proposes raising taxes to pay for his new stimulus plan focused on infrastructure]
Plan your monthly payments now
Thinking ahead about how they will use the extra money each month can help families get the most out of the money, Brown said.
"I would start
thinking now what their plans for the money are
," Brown said, adding that the last thing he would want is for families to reach the end of the year (when monthly payments are due) and feel they have little to show
for the money.
help.
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Like any tax refund, there are no limits on how families can spend the money they receive from the child tax credit, giving a lot of flexibility for
people to decide what to do with
that income depending on their situation.
According to Natalie Foster, co-chair of the Economic Security Project, a nonprofit organization dedicated to fighting poverty, this is especially important for
low-income families and those hardest hit by the pandemic
.
[Biden's new stimulus plan will not raise taxes on you. But this is what you need to know]
"Families know what they need, and
families' needs
change from week to week," Foster said, adding that the most common ones may include paying for car fixes, babysitting, rent, food. and more.
"This is the kind of support that comes without strings attached," he added.
The payment schedule may change
One important thing for families to remember is that the enhanced child tax credit and monthly payments are for one year only, with monthly payments starting in July and running through December.
"This will be a game changer for families starting in the summer, but it is temporary," said Foster.
The remaining credit will then
be claimed when filing the 2021 tax return
and will come in a lump sum with the remainder of what the family owes to the Internal Revenue Service (IRS).
This will likely change the way funds must be budgeted: families may need to find their own ways to save effectively so that credit can be useful over time.
Of course, it is also possible that the new legislation will further expand credit.
The president's tax plan includes extending the child tax credit until 2025, CNBC confirmed.
[The IRS will send additional stimulus payments to those who have already filed taxes and qualify for a larger check]
However, some
Democratic
lawmakers
are pushing for the expanded tax credits
, and likely the monthly payments, to be permanent.
To find out how much you could receive, the personal finance website Grow has created a calculator that takes into account marital status, annual income, and the number of dependents.
This article is part of the Invest in You Ready series. Set. Grow (Invest in you: Ready. Done. Grow), an initiative of CNBC and Acorns, the microinvestment app. NBC Universal and Comcast Ventures are Acorns investors.
