What to know about the child tax credit

what to know about the child tax credit

More money is on the way to millions of American families with children. Here is the basic information you should know about it.

The child tax credit is not new this year. It was introduced in 1998 to give families with children a payment of $400 for each child. Over the years that number grew, and by a year ago the amount had risen to $2,000, though it was only partially refundable against taxes paid.

The news

The big news is that for 2021, as part of the American Rescue Plan Act, that credit was boosted to $3,600 for each dependent child under the age 6 at year-end, and $3,000 for every dependent child age 6 to 17 at the end 2021.

And that amount is totally refundable to the filer — meaning you don’t have to pay ANY taxes to qualify for the credit!

The other big news is that instead of waiting until you file your 2021 tax return next year, the government is going to start sending out the credit in advance in the form of monthly payments beginning on July 15.


The full credit goes only to those who have parental income under $75,000 on a single return or $150,000 on a joint return (or $112,500 for those filing as head of household). Above those income levels the credit phases out. For example, joint returns with income over $150,000 to $400,000 receive a $2,000 credit. There is no credit for joint incomes over $400,000.

This is a credit that is not limited by the number of children claimed as dependents on a qualifying tax return.

Must file a tax return

Unlike stimulus payments which were issued by the IRS as refundable credits to many who never file a return — seniors on Social Security, or low-income people on SSDI, for example — YOU MUST FILE A TAX RETURN TO GET THIS REFUNDABLE CREDIT.

That means many low-income people who are not required to file a return but have qualifying dependent children should go to www.IRS.gov/freefile to get linked up with a free service offered by major firms such as TurboTax that will help them file a return and claim the credit. They should be sure to put in their bank direct deposit information.

Getting the money

You don’t have to do anything else but file your tax return for 2020. The refundable credit will be automatically generated as the IRS scans returns. Money will come by direct deposit if the IRS has that information, or by paper check or card. This is a perfect reason for unbanked people to open a bank account — likely free if you say a government check is coming monthly. Then get a debit card to withdraw cash at ATMs — saving on check cashing fees.

Problems for ex-spouses

Sadly, in many cases of divorce, the wealthier spouse is given the right to “claim” the child for taxes, because he or she has a higher income. The parents might split custody 50/50, but the tax dependency is given to the higher-income spouse.

An ex who is only receiving child support and alimony maintenance does not have to claim that money as income (if the divorce was after 2019). That means the poorer spouse who could really use this big check will not get it. And the wealthier spouse likely earns too much to claim it!

If you can get your ex to reverse this situation and let you claim your child as a dependent for tax purposes, you will get not only the $3,600 or $3,000 per child — but also get roughly an additional $3,000 earned income tax credit . It adds up to a LOT of money. To make the dependency changeover, you need to use IRS Form 8332.

Finally, this was a one-year enlargement of the child tax credit. But looking at past history of ever-increasing payments, it’s likely to stay with us in the future. It’s quite an incentive to have children — and maybe that will help with our aging demographics.