How Parents Are Planning to Use That $3,600 Child Tax Credit

In mid-July, the Internal Revenue Service makes its first Advance Child Tax Credit payments to millions of American parents. For New York State mom of two Alice Anderson, the timing couldn’t be better.

“I have a 13-year-old daughter and a 7-year-old son,” Anderson says. “The tax credit payments are coming just in time for my husband and I to start making payments on our daughter’s new braces.”

Braces aren’t Anderson’s only financial worry. Like many American parents, she’s fighting a financial war on multiple fronts. “Our health insurance has gotten more expensive over the years and this will help us offset those costs,” she says. “Not to mention everything else that is going up in price. From the cost of gas to grocery expenses, it’s getting more and more difficult to get ahead these days.”

But the braces set Anderson apart from other parents Fatherly spoke with for this story. Offsetting the cost of straightening out a set of teeth was a far more detailed plan than most families had for the money. No one we spoke with was upset about getting monthly payments from the federal government. But few had a concrete plan for exactly how they would spend the funds.

Other parents approached for comment in this story say they haven’t earmarked the monthly credit payments for anything specific. While they’re happy for the tax credit advances, they planned to spend the same amount of money they would otherwise, but perhaps with more confidence that they wouldn’t incur overdraft fees.

Connecticut father of one Rob says knowing the credit payment was coming soon influenced his decision to sign his daughter up for an additional week of summer camp. “I probably would have signed her up anyway,” he says. “But a week of camp was a little over $300. The credit takes some of the sting away from writing the check.”

The Child and Dependent Care Credit has been on the books since the late ‘90s, when it was introduced as a $500-per-child nonrefundable credit in the Taxpayer Relief Act of 1997. It has grown several times since. This year, in response to pandemic-induced economic woes, the federal government supersized the credit. In March, the American Rescue Plan increased the Child Care Credit from $2,000 to $3,600 per child for children under six and $3000 for children ages six to 16 while vastly increasing the number of American families who qualify for the credit.

Between 36 and 39 million American families qualify for the credit. And they won’t have to wait until tax season to get it. Parents can claim half the credit when they file their 2021 taxes; the IRS is paying the half the credit in advance through six monthly payments beginning in July. Married couples with incomes of $150,000 or less, unmarried couples with incomes of $112,00 or less, and single parents making $75,000 or less will receive $300 per month for each child five or younger and $250 per month for every child between 6 and 17.

“They’re paying it upfront, which is really new and different,” says Jackson Hewitt Chief Tax Information Officer Mark Steber. “We haven’t seen that related to a program of this size and scale in a long, long time. It’s a totally new way to get people their money.”

Ohio mother of one Corritta Lewis says she’s grateful for the credit but doubts it will have a substantial impact on her budget.

“The money will not make much of a difference in our overall family finances, although it is helpful,” she says. “We are planning to put the additional money in our son’s 529 College Account. The additional contribution will help fund his education. With the compound interest over time, the additional contribution could be more than $10,000.”

According to Steber, Lewis’ sensible plan for the credit payments tracks with Jackson Hewitt survey data about how Americans use their tax refunds.

“I’m happy to report that most Americans are pretty savvy about how they spend their money,” Steber says. “Despite all the comedies about going on benders and heading to Vegas, most Americans we work with spend their money very, very carefully. They pay down debt, put some into savings or household expenses. I suspect these advanced child tax credit credits will be spent in a very similar way.”