Picture of Ben Joergens

On March 11, President Joe Biden signed the American Rescue Plan Act of 2021 into law, launching funding for a number of programs. The legislation includes help for small businesses, restaurants and airlines—and changes the dollar amount available for parents who have children.

For 2020 tax returns, the child tax credit (CTC) was worth $2,000 for each child under the age of 17 who was claimed as a dependent on your return. This credit phased out if your adjusted gross income (AGI) was above $400,000 (joint return) or over $200,000 on a single or head-of-household return.

In 2021, the American Rescue Plan temporarily expanded the CTC to $3,000 for children over 6 years old and $3,600 for children under 6 years old—fully refundable. One major change to the credit is that instead of having to wait until you file your 2021 return to get the money, you will now receive half of it in advance, with monthly direct deposits starting in July of this year. These payments will continue through December, with the remaining second half (6 months) available when you file your 2021 return.

Some general rules still carry forward from 2020, such as all children need to be U.S. citizens, national or resident aliens and have Social Security Numbers. You will also need to claim the child as a dependent on your 2021 return.

Do all families qualify?

Not all families will qualify, as there are income limits established to receive the CTC. Through the American Rescue Plan, the CTC will phase out with Adjusted Gross Incomes of $75,000 for single filers, $112,500 for head-of-household and $150,000 for joint filers.

Breakdown of payments (per qualifying child):

 Month Payment ages 5 and younger   Payment ages 6 to 17 
 July 2021 (first payment)  $300  $250
 August 2021   $300   $250
 September 2021  $300  $250
 October 2021  $300  $250
 November 2021  $300  $250
 December 2021 (last monthly payment)   $300   $250
 April 2022 (second half of payment)  $1,800   $1,500


A scenario

Let’s look at a scenario for a married couple filing jointly that has two children under 6 and one child between 6 and 17, making less than $150,000. They will receive $850/month from July through December and then will receive their second half payment when filing taxes in April for $5,100. That is a total of $10,200!

Open that bank account!

For those who file taxes without using direct deposit for their refund, this would be a great time to open a bank account to have these funds deposited sooner. That way, you don’t have to wait on a check. Banks have many choices when it comes to bank accounts. Some banks even have second-chance accounts for those may have made mistakes in the past and need a second chance.

What do I do with this money?

Obviously, this money can help with the day-to-day expenses with having children (diapers, formula, clothes, etc.). However, if you are in a situation where you and your spouse have been working and earning regular paychecks, this is a GREAT time to save some of this money for your short- and long-term goals. This could be saving for sending kids to college, building that emergency fund, future vacations and more.

One way to automate these savings is to set up an auto transfer from one account to the other. For example, the couple from the previous scenario could take this new $850 per month and set up a direct transfer for their savings account. In six months, there will be an additional $5,100 in that account. What a nice relief that would be for many families who have struggled to pad that emergency fund, save for college or meet other personal savings goals.

As always, be sure to check with your tax professional for advice about your individual situation.

What are you saving for?

Set up direct deposit to a savings account, or automatic transfers from your checking to savings, and you’ll be reaching your goals in no time! We even make it simple to open your checking and savings account online.

Ben is responsible for enhancing Old National financial literacy initiatives by partnering with schools, colleges, universities, businesses, nonprofits and government agencies. In 2017, Ben was recognized by the National Financial Educators Council (NFEC) with its coveted Financial Education Instructor of the Year Award.

This content is not intended to provide legal, tax, accounting, financial or investment advice or indicate the suitability of any product or service for your unique circumstances. You are encouraged to consult with a qualified legal, tax, accounting, financial or investment professional based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.