A little financial planning can help you go a long way with the child tax credit amount.
In 2021, more American families are availing child tax credit than ever in history. As many as 36 million families are appearing opting in, thanks to the expanded amount and ease in eligibility criteria. This comes from the $1.9 trillion American Rescue Plan Act, which was signed into law back in March 2021 to pull people out of financial havoc led by the pandemic.
It’s currently a fully refundable credit. There’s no minimum income, meaning you don’t have to have income or income tax liability to be eligible to get the full credit. But yes, it does have some maximum eligibility criteria to meet, which is to be determined based on your tax filing for the year 2020.
While the road to getting the CTC in your bank accounts isn’t a difficult one, the real difference lies in how you use that money. Since the onset of the COVID-19 pandemic, the Biden administration has rolled out endless stimulus packages to support Americans financially. However, unless you know how to put that money to the best use, your problems will never really solve.
So, how to put the amount of child tax credit 2021 to the best use? If you’re running late on your basic household bills or grappling with feeding your family’s appetite, the payment should immediately be put in use for summing up your delayed bills, food, and your family’s basic needs.
If you are doing well with your family bills and are not struggling to meet your basic expenses without CTC payments, financial advisors say it’s good to steer on the more strategic path with this money instead of just letting the payment sit in your bank accounts.
Below are five strategic yet intelligent ways to use the child tax credit 2021.
5 Best Strategic Ways To Use Your Child Tax Credit 2021
1. Pool up your emergency fund
The year hit by COVID-19 led pandemic has made one fact clear, having emergence savings or funds for unprecedented time is not a choice, but a need. If you are already able to meet your financial liabilities and this amount is a bonus for you, save it for the latter and don’t touch it.
Financial experts say to save three to six months of living expenses is enough to tackle any financial disaster. And if your financial position allows you to reserve out more, a year is a suitable period.
2. Liquidate your debts
Another significant aspect of wealth management is to pay off the debts as quickly as you can. So, what can be a more decorous opportunity than this to pay off any money that you collected in borrowings? There are plenty of benefits of paying off your debt, the first one being- your money is just yours, especially when a financial crisis like a pandemic hits again.
Another advantage of paying off your debts is, it will help you build your credit score, which in turn will clear your way to borrow money from a bank in case of emergency. It also saves the trouble of interest payments which is the extra amount you have to pay for borrowing.
It not only allows you to focus solely on your savings while saving you from the mental burden and stress. Therefore, paying off your debts through the child tax credit 2021 amount can be the best decision.
3. Invest in healthcare
The COVID-19 outbreak has reinforced the importance of placing healthcare at the priority. Now that climate change is at its peak, giving rise to modern diseases due to transitioning ecological state, planning for the future of your and your family’s health is a must.
Therefore, it’s worth setting some of the CTC payments to meet your kids’ future medical costs. One way is to put this money in a health savings account to meet future medical expenses. In 2021, individuals up to $3,600, and families can put up to $7,200, into HSA accounts.
Performing such will enable you to disburse tax-free qualifying medical expenses and curtail your tax bill via contributions.
4. Invest in your child’s education
Education is one sector that has suffered immensely during the pandemic. Even in the pre-pandemic world, millions of deserving young Americans miss out on great career opportunities due to high college fees. The student loan is one way how Americans slip into a lifelong debt trap due to insufficient funds for education.
A 529 account is a wise option to lay tax credit payments for your child to pay his college fees in the future. And if you already own a 529 account, use the credit money to boost your 529 savings plan. Such an account is not subjected to income tax and withdrawals are tax-free at times when utilized on eligible education expenses.
5. The final resort, opt-out.
This is the final and yet the most significant aspect of the child tax credit. If you think you might have to pay back your tax credit, opt-out immediately because in this case, it will only become a liability.
Do I need to pay back my credit tax amount? Generally, no. But there is a special clause in the child tax credit 2021 that might end you up in a position to pay it back. What is it? Check out our report on “answering all questions on the child tax credit.”
Make sure that your tax credit amount doesn’t become a liability for you. Take the decision after researching all the aspects.