Child Tax Credit 2021: How Should You Spend Your Advance Payments?

For the first time in U.S. history, a major tax credit is being distributed in monthly advance payments.A Since July of this year, more than 35 million American families have benefited from these monthly payments due to the recently enhanced child tax credit (CTC). Each of the six installments is around $15 billion, adding up to roughly $90 billion in tax credits by the end of 2021.

For many families, especially those with multiple children, these advance payments have helped increase funds in their bank accounts. However, should these additional funds increase their household’s monthly expenses? If you’re a parent, you may be wondering how to use this extra money responsibly or whether you should even spend any of it.

In this blog, we want to help explain the impact of the 2021 Child Tax Credit (“CTC”) and share how you could effectively utilize your advance child tax credit payments.

What is Child Tax Credit?

The federal CTC essentially reduces income tax liability for people with children.B According to the Congressional Research Service, the CTC began in 1997 with the original intent of providing a $500-per-child nonrefundable credit to effectuate some tax relief to middle and upper-middle-class families.C The CTC has since evolved to increase the accessibility of this refundable credit to low-income families. The credit phases out depending on the modified adjusted gross income amounts for single filers, taxpayers with a qualifying child, and married couples filing joint tax filers.

What is the Child Tax Credit for 2021?

The federal CTC received more changes in 2021 than any other year. If you are an eligible taxpayer with qualified dependents, changes to the CTC payments have already, or will soon, affect you. Below is a summary of what is considered to be the most notable changes:

  • The CTC increased from $2,000 per child for the year to $3,000 and $3,600 for a child under the age of six.
  • Parents who qualify for the child tax credit have the option to receive up to half of their 2021 child tax credit in an advance payment, which started in July, through December 2021, with the remaining half upon completion of their 2021 income tax return filed in 2022. (The credit is subject to restrictions if used to offset increased tax liability – due to taxpayer earning more income)
  • 17-year-olds listed as dependents on a tax return for 2021 now qualify for the CTC.
  • The credit is fully refundable (unless you have additional tax liability due to increased income). Previously, the child tax credit was only partially refundable, with a taxpayer receiving a maximum of $1,400 refunded even if they owed no tax.
  • The $2,500 earnings floor is removed. For the 2020 child tax credit, filers could only qualify for a tax refund if they received a minimum of $2,500 of earned income.D For 2021, you can receive the credit even if you have no income. However, in this instance, you would need to file a zero income tax return. In the past, you would not file a zero income tax return.

Who Qualifies for the Child Tax Credit Advance Payments?

The Internal Revenue Service (IRS) provides an interactive Tax Assistant Tool to confirm whether you qualify for the advance child tax credit payments. However, in addition to claiming child tax credit on your 2019 and/or your 2020 tax return (non-filers can still be eligible through using the non-filer sign-up tool), some of the primary eligibility requirements include:

  • You must have lived in a main home in the United States for more than half the year or filed a joint return with a spouse who does fulfill this requirement. The IRS defines your “main home” as the residence in which you live most of the time. To learn more about how the IRS determines a taxpayer’s main home, please see page 3 of Publication 523.
  • You are a taxpayer with a qualifying child under 18 years old by the end of 2021 and who also possesses a valid social security number.
  • Your adjusted gross income will determine if and how much you might receive in credit. You will be eligible for the full credit if:
    • You are a single filer earning less than $75,000 per year
    • You are the head of household earning less than $112,000 per year
    • You are a married couple earning less than $150,000 per year.

For those with higher incomes, the amount of your CTC payment will be reduced by $50 for every $1,000 of income you make over the thresholds mentioned above.

5 Steps to Help You Wisely Spend your Child Tax Credit

A recent poll conducted by National Public Radio (NPR), the Robert Wood Johnson Foundation, and the Harvard T.H. Chan School of Public Health, surveyed 3,500 respondents throughout the U.S. in July and August. Of these 3,500, 87% expressed experiencing serious problems providing for their children.E

Amid this pandemic, parents nationwide have lost their livelihoods and financial security, with some struggling to provide for their children’s basic needs. Fortunately, the child tax credit with the option for advance payments can help offer relief for many families. Through financial stewardship, some parents who have struggled to make ends meet can now have a greater chance of taking ownership over their finances and paying off their debt.

If you are a parent who has received advance payments and/or anticipating a refund due to the enhanced child tax credit in your income tax return, here are some steps to help you make the most of this credit.

1. Budget for necessities

If you’ve struggled to provide for your family’s basic needs, you can use your advance towards these expenses. Budget for groceries, utilities, rent or mortgage payments, and health-related costs. Once these are covered, you can start planning for the future.

2. Develop your Emergency Fund

A survey from July of 2021 conducted by Bankrate revealed that 51% of Americans have less than three months’ worth of expenses covered in their emergency funds, with 25% indicating to have no emergency funds.F These stats are troubling, considering the unpredictability of the economy amid a pandemic.

That’s why building an emergency fund of three to six months’ worth of expenses is recommended. That way, if an unforeseen financial issue does arise, you have taken the necessary steps to prepare accordingly. Contingency planning will help mitigate the worry of using funds from your main bank account that is typically used to pay for your family’s basic needs.

A liquid bank account, especially a high-yield savings account, is a great option for building your emergency fund. The ACE Flare® Account by MetaBank® allows you to earn up to 6.00% annual percentage yield (APY) with qualifying direct deposit activity and receive your paychecks up to two days faster.1,2,3 With this account, you can put money into savings and earn more in interest than with a traditional savings account. This is a great account to get started with building your emergency fund!

3. Pay off your debts

Along with building your emergency fund for your family, you can start paying off your debt. There are numerous strategies and techniques in place for this, but some popular options include:

  • Debt avalanche: pay off debt from smallest to largest, sending minimum payments for larger loan amounts and extra funds for the smaller loan amounts.
  • Debt snowball: Concentrate on paying off the highest interest loans first while sending minimum payments on loans with lower interest rates.

If you have any outstanding debts, especially from credit cards or debts that have gone to collections, you may want to focus on paying these off first.

4. Invest in Your Family’s Health

If you are not already doing so, now is the time to set money aside for future medical expenses. If you have a high-deductible health plan, you can take advantage of a health savings account (HSA). The annual limit for HSA contributions increased in 2021, allowing families to contribute up to $7,200. You can also opt to add funds to your HSA at any time through a direct contribution. These contributions can be deducted from your tax return.G

Unlike a health reimbursement account, an HSA belongs to the individual and not the employer, so if an HSA-qualified health plan covers you, be sure to take advantage of this opportunity.

5. Save for Something Big

Do you need to make a large purchase such as a vehicle or even put a down payment on a home? If you have completed the previous steps, now may be the perfect time to set money aside for these purchases. These advance payments can also be an excellent opportunity for you to start investing in a college education for your child/children through a 529 savings plan.

Receive your Child Tax Credit through Direct Deposit with a Flare Account

According to the IRS, 8 out of 10 taxpayers use direct deposit for their federal tax refunds because of numerous reasons, including convenience and security.H Whether you are currently enrolled in CTC advance payments or plan to receive your refund in full when you file your 2021 income tax return, you can have your CTC advance payments and tax refund direct deposited into an ACE Flare® Account by MetaBank®.1 Receiving your CTC advance payments and tax refund via direct deposit is faster4 than receiving a paper check.

Additionally, if you decide to direct deposit your CTC advance payments, tax refunds, paycheck, or government benefits, you can receive access to some other great features! You can receive these payments up to two days faster.3 You can also take advantage of no-fee cash withdrawals of up to $400 per day at ACE Cash Express, an optional high-yield savings account, and more.2,5

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C. The Child Tax Credit: Legislative History (


E. Most U.S. Households Struck By COVID-19 Suffer Financially, Too : Shots - Health News : NPR





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