Understanding The 2021 Child Tax Credit

Over the last several weeks we have fielded more questions than usual about the Child Tax Credit. By now, you’ve probably heard that some changes have been made for this current year. Based on what we’ve heard, there seems to be a lot of confusion about the initiative. Let’s start with a clear understanding of what the program is, to begin with. The Child Tax Credit was introduced in 1998 as part of a Taxpayer Relief Act and has slowly grown from its starting point of $400 per child per year to $2000 per child per year in 2020. The money has never been given out in this fashion before but has historically been given as a credit toward a family’s taxes.

In light of the financial pressure many families have experienced during the COVID-19 pandemic, the government has opted to do the Child Tax Credit differently this year. The amount of money per child is increasing for 2021 taxes from $2000 per child to $3,000 per child under the age of 18 or $3,600 per child under the age of six. Half of the money will be distributed in monthly payments from July through December. This portion of the 2021 tax credit is what seems to have confused many people. The second half of the money will be applied to your 2021 taxes as usual.

This increase in funding is part of what the government is calling the American Family Plan.

As of now, it is for one year only. Families can opt to forgo the monthly checks and apply the entire amount to their 2021 taxes. Following the PPP loan program and the stimulus checks distributed throughout the last year, the changes to the Child Tax Credit in 2021 are so far only intended for this year to grow the economy as we recover financially from COVID-19. 

At Fix-It Accounting we are glad to be your resource for your personal and business tax concerns. We hope this irons out any confusion you have had about the changes to this program. Contact us anytime if you have more tax questions or if you need assistance with your personal or business accounting and bookkeeping. We’re here for you anytime.