Why People Are Up In Arms Over The Monthly Child Tax Credit
The COVID-19 pandemic caused a tremendous amount of economic turmoil and the finances of average, everyday people suffered as a result. To help combat this, the federal government began offering monthly tax credits to families with children. While this tax credit program was met with great acclaim, it stands to end in January 2022, unless a political solution is reached.
How Does The Child Tax Credit Work?
Most people with children are eligible for a tax credit at the end of every year that allows for some tax relief due to the high costs of raising a child. Typically, an individual or a couple is eligible for $2000 in tax relief per child, but starting in July of 2021, people started receiving $3600 in assistance for children under 6 and $3000 for children aged 6 to 17; both in the form of a monthly check of $300 and $250, respectively.
Single parents making up to $112,500 and married couples making up to $150,000 are eligible for the credit and monthly payments are automatic, requiring no sort of advanced set-up or application process. The monthly checks are sent out as part of a joint effort between the IRS and the Treasury Department, with over 35 million families receiving monthly monetary amounts, mostly through direct deposit.
Why Is The Program About to End?
As these monthly payments cost about $16 billion a month in order to send out, there is a lot of political concern related to its continued sustainability. Funds were set aside to properly run the monthly tax credit program for a roughly 6 month period, but unless further legislation is passed to continue the monthly payments by December 28th, the IRS won't be able to meet its January 15th deadline.
Although monthly payments are considered to be politically tenuous, there's a great deal of support for their continuation in general, with many people from many different political camps looking to keep them an active part of parent's everyday financial planning. Some have even suggested extending monthly tax credit payments to 2025 or even making them permanent. As an estimated 10 million children are at risk of entering poverty if payments stop, it's become a topic of interest among families hit hard by the pandemic.
It should be noted that while monthly payments might possibly stop in the near future, the tax credit is still largely in play, so the remaining 6 months worth of money can still be collected when tax season comes around.
Why Is This Relevant to Your Finances?
The child tax credit debate can have serious implications for your finances if you have children. It's entirely possible that while you've been receiving monthly payments, which occur automatically, you simply haven't noticed the money entering your account. If your personal finances are based around rigid monthly income and expenditures, instead of everything being highly itemized, then changes in automatic payments might throw a wrench in your financial planning. You might be under the impression that you make several hundred dollars a month more than you actually do, which can hamper budgeting and investments in the event child tax credit payments stop.
However, it's good to keep in mind that there is a lot of political will sustaining these payments long-term, in which case, you can actually make a child tax credit a viable part of your financial strategy. Every month, you could potentially receive up to $300 in assistance for every child you have; as this is a tremendous financial boon, it's good to put it to use by investing it as soon as possible. Obviously, if you're having money troubles as is, you can simply put the payments toward bills, but in the event that you have some wiggle room, using them to ensure your children's future would be best.
A good go-to option is to open a bank account in your children's names that you deposit monthly payments into. Alternatively, you could invest in savings bonds, although if you're thinking especially long-term, then consider opening a personal pension account for your children's eventual retirement.
Taking The Tax Credit Into Account
Although the status of the child tax credit monthly payment program remains in flux for the time being, it's important to consider the possibility that they may stop or continue to be provided at any time. Either outcome is going to have serious implications for your financial health.
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