What is Child Tax Credit?

The American Rescue Plan recently expanded the Child Tax Credit to help families afford the essentials. This expansion will impact 39 million families set to receive monthly child payments beginning on July 15. The IRS will determine eligibility based on the 2019 and 2020 tax years, but people will also be able to update their status through an online portal. While the Child Tax Credit expansion in the Rescue Plan is temporary, many believe policymakers will make both the expansion and the monthly delivery mechanism permanent this year in the upcoming recovery legislation. 

Families that qualify will receive a payment of up to $300 per month for each child under six and up to $250 per month for children between six and seventeen. The American Rescue Plan initially increased the full credit to $3,600 for a child under six and $3,000 six or older. This is a significant shift as the child tax credit was previously capped at $2,000 and only paid out to families with income tax obligations after filing with the IRS.

Who Qualifies for the Child Tax Credit?

Families that receive a monthly Child Tax Credit may use those funds to cover basic and recurring expenses and also make sizable investments in their child’s future through UNest. This will prevent your child from having to borrow money (or needing to borrow far less) in the future. UNest is committed to democratizing access to saving and investing solutions for families everywhere. If used correctly, we believe that this tax credit can make a meaningful and lasting impact on your child’s future.

The American Rescue Plan made the full credit available to children in families with low or no earnings in a year. The result was that the children who needed the help the most were no longer left behind. The impact is strongly felt by single parents who previously received a Child Tax Credit of $1,125 and will now receive $6,600. This amounts to a $5,475 increase that can go a long way to help the parent save for their child’s education, car, home, etc. Nearly 88% of children will receive the benefits without their parents needing to take any additional action.

Why is Child Credit Important?

Throughout the pandemic, we’ve seen struggling families fight to pay rent and put food on the table. With this tax credit and an improving economy, parents should now be able to breathe a little easier and hopefully not only cover the basics but start planning for their children’s future. The Child Tax Credit, which is now delivered monthly, rather than as a single payment at the end of the year, can help families make ends meet by supplementing their incomes throughout the year. This income boost will help families plan for the future and is a fantastic opportunity to explore savings and investing solutions to let those additional funds create excellent stability for your children’s future. 

Regrettably, 27 million children, over half of whom are considered minorities, did not receive the full $2,000 Child Tax Credit because their parents earned too little. Now that this miscarriage of justice is corrected, we invite all families to join us on UNest and let us help you build the savings your children will need to achieve their dreams. Approximately 4.1M children will be lifted from poverty. While this is an important short-term accomplishment, we at UNest hope to make this change sustainable by providing parents and their families the support and affordable investment advice they need through UNest. 

How Can Parents Make the Most of the Child Tax Credit?

Families need the Rescue Plan’s Child Tax Credit expansion and may be well served to open a UNest Investment Account for Kids with the funds received. For example, if you open a UNest account and invest $250 of the tax credit every month for 18 years your child may  have approximately $120,000! This estimate is calculated using an 8% annual rate of return. As you can see, having a monthly benefit can be used for the monthly contribution our 300K and growing families currently using UNest are already making to help their children achieve their dreams via the UNest mobile app available on IOS and Android.  A UNest account takes less than five minutes to set up, and parents can set their contributions to happen at the same time their tax credit payments are received. 

Disclosure

College Savings Calculator is a hypothetical tool that demonstrates how monthly contributions, age-based asset rebalancing, and tax savings may impact the long-term value of your account, and do not take into account a portfolio’s underlying investment management fees. Calculations assume the private institution cost inflation is 2.8%, public out of state cost inflation is 3.9%, public in state cost inflation is 2.7%. Portfolio is assumed to have only stocks and bonds. Monthly equity returns are based on the historical data from the 10-year track record of the stock market (SPY). Monthly fixed income returns are based on the historical data from the 10-year track record of the bond market index (AGG). The current college expenses are provided by the collegeboard.org. Actual account performance may differ due to market fluctuations, changes in recurring investments, and asset allocation. The information provided here is for illustrative purposes only and does not represent actual or future performance of any investment option and is not intended to predict or project the investment performance of any security or index.