In March 2021, The American Rescue Plan1 (a $1.9 trillion stimulus package) was passed into law and one of the significant changes it included was expanding the child tax credit for 2021. Starting in July, many families began receiving hundreds of dollars in monthly payments that will continue until the end of this year.
The full enhanced credit for children ages 6-17 is $3,000 ($250 monthly) and $3,600 ($300 monthly) for children under 6. However, not all families with children will get a higher child tax credit. Those that qualify can receive half of the benefits as monthly payments and the other half after filing their 2021 tax returns. The enhanced tax begins to phase out at modified AGI’s of $75,000 on single returns, $112,500 on the head of household returns, and $150,000 on joint returns.
According to a May 2021 survey from Stash2 on the changes to the child tax credit, more than half of parents who are eligible for the child tax credit plan to save the money rather than spend it. There are no requirements on how the enhanced credit payments must be used, making an investment an attractive idea. The increase in monthly household cash flow can provide an opportunity to begin or increase investments focused on children’s futures, including 529 accounts, custodial accounts, or custodial Roth IRA’s. If your family is a recipient of this credit and you are in a position to use the credit to boost your savings or plan for your child’s future education, give us a call to review your options and being planning today.
