The 2021 child tax credit modifies the rules of the 2020 child tax credit as part of the American Rescue Plan. Its goal is to reduce child poverty, giving American families a welcome post-COVID-19 financial boost.
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How can you make the most of any child tax credit you are eligible to receive? For families whose income has not been drastically reduced by the pandemic, the child tax credit amounts to a minor, recurring windfall.
A smart first priority for how to use the credit may be to build up an emergency fund. If the pandemic has taught society any lesson, it is that unexpected things can crop up, impacting your family’s income more quickly than you may have previously imagined.
Once you have built up a reasonable emergency fund, you may want to use any incoming tax credits to pay down credit card debt, the most expensive type of debt. The more you can add to the minimum payment due on your credit cards each month, the faster you can achieve financial freedom.
But what if the tax credit is not enough to substantially reduce your debt? If you have over $10,000 in credit card debt, debt settlement may be an option to explore. Among all the various forms of debt resolution, debt settlement enables you to pay less than your principal balance owed. You can talk with a ClearOne Certified Debt Specialist at 866-481-1597 to learn more about how debt relief works.
The Biden administration estimates that the 2021 child tax credit rules will positively impact 39 million families. Most of the new provisions of the Tax Credit are temporary. Here are some of those provisions, according to the IRS:
Starting July 15, qualifying US families will receive $300 per month per child under 6. Here’s a deeper dive into how the revised rules work and what they may mean for you and your family.
The child tax credit is a form of financial help for US families designed to help those who need it the most. Higher-income families do not qualify for this tax credit. To establish eligibility, the IRS uses the information you provide on your tax return.
Example: If you are a single person with a 3-year-old child and an AGI of $85,000, you get $500 less (50x10, since you are $10,000 over the limit). Therefore, instead of $3,600, you get $3,100. With a 17-year-old, you would get $3,000-$500 = $2,500.
The 2021 child tax credit is fully refundable.
If you qualify for the $3,000 or $3,600 child tax credit, you will get half of it in $300 or $250 monthly installments. You will receive the rest as a tax refund.
Be aware that if your income situation changes through 2021, affecting your child tax credit eligibility, you can update your information with the IRS through an online portal. If you have a new baby in 2021, you can update your information through the same portal to gain tax credit eligibility.
If you find yourself struggling with debt despite tax refunds and credit payments, seek debt relief through other means. ClearOne Advantage’s Certified Debt Specialists are standing by at 866-481-1597 to help you design a plan that fits your budget. Contact us today to get a free savings estimate.
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