Congratulations! You may be qualified for the Child Tax Credit which has a set of brand new standards for 2021. This year the benefit has significantly grown, putting more money back into households with kids. It has also changed some characteristics that should be explained. This change was based on the American Rescue Plan Act of 2021, a $1.9 trillion dollar package, which included the expansion of the Child Tax Credit, the Earned Income Credit, and the Child and Dependent Care Tax Credit for an estimated $34.3 billion dollars in direct financial assistance.

Who gets to take advantage of the expanded Child Tax Credit, how is it disbursed, and how will that look to the taxpayer at refund time?

In 2020 and years before, the Child Tax Credit allowed for filers with dependent children to claim a $2,000 per child tax credit. This credit was partially refundable and was determined on the tax return rather than throughout the year. This has now changed and will have an effect on your 2021 tax return if you qualify.

2020	(American Rescue Plan Act of) 2021
$2,000(<17 Years Old)	$3,000(<18 Years Old) $3,600(Less than 6 years old)
Partially Refundable	Fully Refundable
Received Through Tax Refund	Received Through Monthly Payments Based On Previous Tax Returns

The Child Tax Credit is different from how we have received most of our tax credits previously and is known as “fully refundable”. Other fully refundable credits are less common. A fully refundable credit allows someone to receive the credit no matter the tax liability one might have. This means that if you have no tax liability, after all deductions and other credits are applied, and 3 dependent children above the age of 6, you would receive a credit and federal refund in the amount of $9,000 ($3,000 x 3 children).

The Treasury is currently sending out the Child Tax Credit on a monthly basis through direct deposit or mail. The amount that lands in your hands depends on the total credit which is due divided by 12, to make monthly payments to the recipients. Using the above example, if you had a $9,000 Child Tax Credit, you would receive $750 a month ($9000/12 months). By receiving the credit on a monthly basis, you are no longer receiving that portion of the credit in the tax refund for the year. This smoothing of the credit and distribution throughout the year was designed to have families less reliant on a large yearly tax refund and allow them to use the refund throughout the year.

If you are eligible for the Child Tax Credit, disbursements have started to be paid as of July 15th and will continue to be disbursed on a monthly basis. For those who should have, but did not receive a July disbursement, make sure you have the proper direct deposit information on file with the IRS. If your 2020 tax return has not been processed, they will use your 2019 tax return as the source of (1) how many dependents you have and (2) where to deposit the Child Tax Credit due to you. The following link will take you to the IRS site for additional information.

IRS Child Tax Credit

For those who are not receiving the payment due to not filing consistent tax returns, use the following link.

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