2020 was a crazy year, but one of the good things to come out of it was the child tax credit stimulus payments. It’s no surprise that the extra funds have been helping families all over the US with all kinds of things.
For some families, the child tax credit allowed them to catch up on bills, while others spent the money on child care necessities, and some were able to put the money towards family fun. Families that received the extra stimulus payment know how influential it has been, but money can feel complicated.
Even after a few months of stimulus checks, many families still have a lot of questions. One of the biggest questions on the minds of families who are new to financial literacy is: What is the best way to use this extra money?
When you’re getting started with financial literacy, it’s easy to feel overwhelmed, especially when an extra $300 or so falls into your lap every month. How can you use that to build a better future and a better now for your kids?
Add in confusion you might still feel over what the Child Tax Credit is, and the people who are suggesting you opt-out of the Child Tax Credit, and you have a recipe for stress. Don’t give up just yet! Penny Calling Penny is here to take you through everything you need to know about the Child Tax Credit Stimulus.
What Is The Stimulus Check Child Tax Credit?
Before we get started, let’s learn about the Child Tax Credit and why people call it a “stimulus check.”
The current Child Tax Credit is part of the American Rescue Plan. This is an Act put in place to help American taxpayers take care of their families during the Coronavirus pandemic. The American Rescue Plan Act was also responsible for one of the stimulus checks, which is why the Child Tax Credit is referred to as a “Stimulus Check” or “Stimulus Payment.”
The Child Tax Credit gives families with children an advance on their tax returns. For families who have filed taxes with children before, you know that your tax return is larger than those who don’t care for kids. The Child Tax Credit gives families this money sooner.
The idea behind this is to help families who are struggling during the pandemic by giving them access to extra funds. It’s estimated that it’ll help reduce the number of children living in poverty by as much as 45%. It also helps families above the poverty line plan for their children’s futures.
You might be unsure whether you qualify or how much you should be getting. No worries, the IRS has a tool to check your eligibility!
Can I Opt Out Of The Child Tax Credit?
You might hear about people “opting out” of the Child Tax Credit. Let’s cover three of the biggest questions people have about the opt-out:
- Can I opt out of the Child Tax Credit?
- How do I opt out of the Child Tax Credit?
- What is the deadline to opt out of the Child Tax Credit?
Can You Opt-Out of the Child Tax Payments?
Yes! The IRS isn’t forcing these payments on anyone. Since it would be part of your normal tax return, they have an option for families who would rather wait and get their tax payment as a lump sum.
How Can You Opt-Out of the Child Tax Credit?
You can opt out of the Child Tax Credit by visiting the IRS’s Child Tax Credit Update Portal. You’ll need to create an account if you don’t have an IRS account already, and then you can unenroll from payments.
What’s the Deadline to Opt-Out of the Child Tax Credit?
Each Child Tax Credit payment arrives on the 15th of the month. The deadline to opt-out of the two remaining 2021 payments is November 1st (to opt-out for November) and November 29th (to opt-out for December). It’s important to note that the un-enrollment can take up to 7 days to process, and you’ll want to check back to make sure that it’s processed fully.
Why Should I Opt-Out Of The Child Tax Credit?
Ok, so we know what the Child Tax Credit is and that you have the choice to opt out, but there’s been a lot of buzz around it. You’ve heard people saying that you should opt-out of the Child Tax Credit ASAP, that it’ll do you more harm than good, and that if you don’t opt-out, you’ll regret it.
Is there any truth to all this hype? Sort of. It all depends on your family’s situation and financial goals. Here are the two main reasons you might want to opt out of the child tax credit.
First, you might want to opt-out if you prefer to have your tax return in a single payment. However, this comes down to personal preference, so it isn’t really important.
More importantly, you should opt-out if there’s a chance you’ll owe taxes to the IRS. People who freelance full-time, for instance, owe taxes to the IRS, and the Child Tax Credit will increase the amount you owe.
Another thing that might lead you to owe taxes to the IRS is if there’s a change in your family in 2021. For instance, say you had a child who was under six in 2020 but aged into the next bracket during 2021. Since the Child Tax payment for children over six is different from the payment for children under six, you’d end up owing extra in taxes at the end of the year.
How Should I Use The Child Tax Credit Stimulus Check-in?
Alright, so now we know what the Child Tax Credit is and why you might want to opt out of the Child Tax Credit. We also looked at the deadline and how you can opt out of the Child Tax Credit.
Most people won’t choose to opt out, which leaves one big question. How should you use the Child Tax Credit? You want to get the most out of it, but you don’t know where to start. Depending on your family situation, there are a few different ways you can use the Child Tax Credit.
No matter what your situation is, there are three things you want to be sure you do with any extra money that comes your way, especially a tax credit. Let’s go over them one at a time.
Back to Basics
First, budget some of your Child Tax Credit to cover necessities. You know the stuff. The Tax Credit is a great way to catch up on bills or buy new clothes for growing kids. Budgeting for necessities first puts you in the right mindset. This isn’t all fun money. You’re going to put it to work for you.
While you have the chance, this is also a great time to sign up for Fetch Rewards. Fetch Rewards is an app that lets you scan your receipts for points. Those points then convert into gift cards that you can use just about anywhere. Using the Child Tax Credit to buy groceries and then scanning that receipt means you’re getting even more out of your grocery budget.
This works when you’re shopping for clothes at most major retailers, too! So when you’re replacing outgrown clothes and shoes, you can get points towards groceries or dining out. The more you save up your points, the sweeter the payoff will be!
Start Saving
Speaking of savings, the next thing to do with the Child Tax Credit is to put some of it in savings. Saving money will help you build a better future for your family. That can mean financial stability from an emergency fund or saving for larger purchases like a home or college.
But saving money isn’t just about sticking it into a separate account and not touching it. If you want to get the most of your savings, look for a high-interest account. Aspiration has one of those high-interest accounts. It has an interest rate of up to 1.00% APY (for reference, the national average is 0.06%).
That means that choosing a specific savings account will help the little bit of money you put in growth over time. Leaving money in a high-interest savings account always pays off, and it’s so satisfying to see those interest deposits!
Find Some Fun
Finally, don’t forget to set aside some of the money for a family fun night or two. Using your Child Tax Credit Stimulus Payment for family bonding should be part of your plan.
Firstly, setting aside some fun money will help keep you on budget. You won’t need to feel stifled or stressed like you’re doing all this planning for nothing. Instead, you’ll be doing what every parent wants to do, more of enjoying your kids and having fun together.
Your family fun can be as crazy or as simple as your budget allows. Maybe you’re going to a trampoline park, or maybe you’re picking out toys or crafts from the dollar store. No matter what you decide, the most important thing is to relax. Let go of the stress and just enjoy the moment with your family.
Using The Child Tax Credit To Create A Better Future
Every parent wants to give their kids the best, but finances can make that hard. Getting started with saving and budgeting can feel like an impossible mountain, but every little bit starts. In fact, congratulations! Just by reading this article, you’re taking steps towards giving your kids a happier, healthier future.
Taking control of your finances can have a snowball effect. Getting your Child Tax Credit taken care of can help you start budgeting all your income, and things will just get better from here. While you’re learning, check out our partners at National Resource Connect. They have even more resources to help you out. National Resource Connect can help you with everything from financial literacy to paying for college, so check them out!
