Unlike many government tax schemes that only seem to help poor people who refuse to work, I am a strong proponent of the federal Child Tax Credit. Created in 1997, the credit is essentially a tax break for parents who have and care for children under the age of 18. The credit is currently worth $2,000 per child, so it’s certainly not a sole financial incentive to have children. However, when used the right way, the Child Tax Credit can make the costs of raising children more manageable and maybe give them a bit of a head start!
Oh Sh*t, We’re Eligible For The Child Tax Credit?
As I highlighted in my article about the first six months of expenses we endured after having our daughter, we had a budgeting plan, plus a reserve before she was born.
The Child Tax Credit really didn’t play a role in that planning because: 1) she was born in March 2023, so we were nearly a year away from it entering our bank account anyway, and 2) I honestly forgot that we were owed that money. You can imagine the glee I felt during the moment I realized I ‘found’ $2,000. It was probably something along the lines of, “Let’s fu*king go!”
For reference, we had somewhere in the ballpark of $8,000 in that account at the beginning of 2024. That, plus the $200 per month we’ve budgeted for ‘baby stuff,’ put us around $10,400 to cover expenses for the year.
How We Spent The Child Tax Credit Money
For my wife’s paycheck, we file two exemptions. I’d rather have more money in the paycheck throughout the year than waiting for several thousand in March or April of the next year. However, we don’t file the third exemption for our daughter, which would result in getting $2,000 spread over 26 paychecks. My reasoning is that, although I lost about $85 in interest earnings by doing it this way, I didn’t want to co-mingle those funds.
First, I took $500 out of that $2,000 and put it right into her 529 account.
The other $1,500 went directly into the baby account, which, for now, is essentially a slush fund for anything that costs more than the $2,400 we budget for baby stuff each year. I will note that $2,400 will be changing to $3,600 right after our new baby arrives in August. I am guessing that baby fund will lose a chunk of its balance this year.
Why I Spent the Child Tax Credit Money That Way
Because we don’t pay for any sort of childcare, we have significantly more money to work with than the average or even above-average income-earning parent(s). Without that expense, and with the fact that we have excellent healthcare, we want to build up that ‘baby account’ as much as possible.The hope is that fund will be used to pay for sports teams fees, braces, or anything that is even semi-related to children in the future.
We are also debating on whether our children will be homeschooled or attend Catholic school. Ohio does have a voucher program that would help cover most of the latter, but outside of an extremely small (approximately $250) tax credit for homeschooling, parents pay for it all. So, there’s also that to consider.
What Would I Do If I Wasn’t As Fortunate?
If we were not blessed with our current situation, we would likely be in debt. At that point, the advice to myself would be to quit fu*king around and start hacking away at the debt.
Not only because slashing debt it is good for your financial future, but also, as I wrote in a previous article, your child’s financial literacy is almost entirely determined by what YOU teach them. Do you really want to set the example that pissing away $2,000 on a TV or grill while your credit card debt grows by hundreds of dollars each month? I sure as fu*k hope not, and since you’re reading this, I am sure you wouldn’t make that decision.
It’s Not Life Changing Money, But Squeeze Out Every Drop
As I said earlier, on its face, $2,000 isn’t going to be the sole financial incentive to have a child. However, that extra $166 per month can certainly go a long way. You might even consider just adding the exemption to your W-4 (talk to your HR person) to get that $2,000 spaced out over the year. If you’re paid every two weeks, your paycheck would grow by just under $77 each pay period.
There might be a time when I, or you, have so much money in that baby account that it isn’t a good use of funds to have so much parked in a savings account. At that point, I would almost certainly put more money into the 529 account.
The ultimate goal is to have options. Take advantage of the Child Tax Credit to put you and your family in a better financial position.
