4 Ways to Use Your New Child Tax Credit to Help Your Kids

Today is game day with my little champ

Expanded child tax credit payments began making their way into taxpayers' bank accounts in mid-July. Throughout the rest of the year, parents of children as old as 17 will receive up to $300 per month per child as an advance on federal tax credits for the current tax year.

You may already have plenty of uses in mind for this additional money without further guidance. This kind of windfall is rare, however, so it's important to consider the best way to do something impactful for your kids, your family and even yourself. Here are a few ideas to get you started.

How Will the New Child Tax Credit Affect Your Family?

For the 2021 tax year, qualifying parents will receive a refundable tax credit that is higher than the 2020 credit. This year, those who qualify will receive $3,600 a year for children under 6 years of age and $3,000 for children ages 6 to 17. Half will be paid in monthly installments from July to December of 2021; the other half may be claimed as a lump sum credit on your 2021 taxes. If you have children ages 2 and 6, for example, you will receive six monthly payments of $550 from July through December and an additional $3,300 credit on your 2021 taxes. Since the tax credit is refundable, you'll receive a cash payment if your tax liability is less than the amount of the credit.

Who qualifies for the child tax credit?

  • Married parents earning up to $150,000 can qualify for the additional credit amount.
  • Head-of-household filers earning up to $112,500 can qualify.

Confirm your eligibility and get more details at ChildTaxCredit.gov. Although there's talk of making these credits permanent, that hasn't happened yet: They're for 2021 only. For that reason, you may want to resist taking actions that will increase your monthly expenses indefinitely, especially if it would be hard to afford when the credits go away. That still leaves plenty of impactful ideas: Read on for a few great ways to spend your child tax credits.

1. Upgrade Your Technology

Remote schooling has brought home the message that technology can help kids succeed. Consider using this opportunity to outfit your kids for the future:

  • Buy a basic laptop computer or tablet for each child who can use one.
  • Look into a faster internet connection.
  • Get a printer for the family to share.

2. Help Your Kids Develop Financial Skills

A little bit of funding can go a long way toward helping your kids learn financial skills that last a lifetime. New tools like prepaid payment cards and budgeting apps give kids the opportunity to learn real money management skills. Just be prepared to offer guidance and limit risk (and access to money), so any mistakes made along the way don't devastate your household finances.

  • Provide younger kids with a reloadable prepaid card. For kids who aren't yet ready for a credit card, prepaid cards offer an easy, low-risk alternativeto cash that they can use to make small purchases in-store and online. Cards like Greenlight and Gohenry are geared toward kids and feature kid-friendly apps that help young users understand their money's ebb and flow.
  • Establish a family grant program. You can use it to fund ideas for improving your household, neighborhood or community. The planning skills they'll learn by taking an idea from inspiration to implementation will serve them for life.
  • Encourage them to start a micro-business. With a small cash infusion, enterprising kids can buy supplies they need to provide all kinds of neighborhood services, including yard clean-up, child care or pet sitting.

3. Invest in Enriching Experiences

Six months is ample time to develop skills or explore a new interest. You might even plan a family getaway that'll build great memories together. Here are some other options:

  • Find a tutor to help your child catch up on academic skills.
  • Connect with a private college counselor.
  • Buy or rent a musical instrument and sign up for music lessons.
  • Get active by joining a sports league, or by taking tennis or dance lessons.
  • Find classes that spark your kids' interest in cooking, cartooning, computer coding, fashion design, woodworking or whatever else they're curious about.
  • Take a road trip to someplace you've never been.
  • Visit family members you missed during the pandemic.
  • Spend a day exploring your city or visiting a local amusement park.

4. Equip Yourself for Parenting and Work

Investing in your family is a benefit to everyone, including your kids.

Save money. Money in the bank is a core component of financial resilience. Adding to your financial reserves will help you weather future challenges or pay for big purchases like a new home or college. Do this by:

  • Shoring up your emergency savings. If you need ideas for where to stash your money, consider a high-interest savings account.
  • Contributing to college savings. A 529 savings plan offers tax advantages to help you put aside and invest money to pay for your child's college tuition. In some cases, you may be able to pay for K-12 education as well.

Get adequate child care. If access to child care has been standing between you and steady employment, maybe now is the time to secure the help you need.

Improve your home environment. Make needed home repairs, buy a kitchen table big enough for everyone to sit and do homework, set up a separate workstation for each child or apply the money toward moving to a more suitable space. If you make a large purchase, you may be able to take advantage of an interest-free payment plan that lets you pay your balance over six months—the number of months you'll be receiving child tax credit payments.

Spend Child Tax Credits Where They're Needed Most

Though this year's child tax credit may be temporary, its impact can be long-lasting if you use the money where it's needed most. After more than a year of educational and social deprivation, having extra money to invest in your family's well-being can be its own kind of recovery. Spend wisely.

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