More than 36 million families will have a little extra money in their bank accounts starting this month, as the first Advance Child Tax Credit is scheduled to be paid out on July 15. If you're like some of my clients, you may have questions such as:

How much is the Advance Child Tax Credit? Am I eligible? What do I need to do to make sure I receive my credit? How will I receive my credit?

Let's break it down. Here's everything you need to know about these recent changes. I have also included updated FAQ resource links to help you navigate and effectively plan for your family.

Advanced Child Tax Credit

For the 2021 tax year only, the Child Tax Credit has been expanded.  While the amount you can receive has increased, the way that you will obtain the credit has also changed. 

A parent or married couple with a child who will be between the ages of 6 and 17 by the end of 2021 will receive $3,000 per qualifying child (up from $2,000 per child) and $3,600 per child for children who will be under the age of 6 on 12/31/2021. (To be eligible, you must have your main home in the U.S. for more than half of the year.) Once your income hits $150,000 for married taxpayers, $112,500 for heads of household, and $75,000 for all other taxpayers, your credit starts phasing out. 

This credit is also refundable, meaning that even if you don’t owe any tax, you can still receive the credit in the form of a refund, unlike many other credits, which will only reduce your tax liability to zero. 

The other benefit? You can begin to receive this credit now. 

As of July 2021, the IRS is going to begin making advanced monthly payments of the Child Tax Credit. The payments will go out on the 15th of each month from July through December 2021. The amount of the advanced payments will equal up to 50% of your eligible Child Tax Credit total.  The remaining 50% will be credited in a lump sum when your 2021 taxes are filed. The maximum monthly payment is $300 per child per month for children under age 6 and $250 per child per month for children ages 6 to 17. The credits will be estimated based on your 2020 income tax return (if filed) or 2019 tax return if your 2020 returns have not yet been filed.

So for example, if you have 3 children who will be between ages 6 and 17 at the end of 2021, and you received $6,000 as a child tax credit on your 2020 income tax return, you will receive a $9,000 child tax credit this year: $4,500 would be distributed in monthly payments of $750 each over the next 6 months and the remaining $4,500 credit would be applied in your upcoming 2021 tax filing.

The best part is there's nothing that you need to do- these payments will be sent automatically. The payments will be sent out either by direct deposit or check depending on what is on file from your previous filings. 

If you do not want to receive advance payments, you have the opportunity to decline them.  The IRS has urged taxpayers to watch for more updates and information in the coming weeks.  You can also visit www.irs.gov/childtaxcredit2021 to find out more.

Child and Dependent Care Credit

Depending on your tax situation, the Child and Dependent Care Credit may be a benefit to you as well. This credit allows you to reduce your taxable income by taking a credit for the costs of caring for your “qualifying person” (i.e. children or dependent parents). 

And now for 2021, if you end up not having taxable income, this credit, like the Advanced Child Tax Credit, will also become refundable, meaning you will get a refund from the credit even if you don’t owe tax.  

The person who provides the care will need to give you their name, address and social security number and the money you pay them will be reported to the IRS, so they will have to claim the income on their tax return.  There are income limitations that reduce the credit from 35% to 20%.   The maximum credit is $3,000 per child for up to 2 children.  

If your employer has a dependent care benefit, then you will have to reduce the credit by the amount your employer pays.  This is because that deduction comes from wages which are not subject to income tax. There are other eligibility requirements that you must satisfy as well, so it’s a good idea to make sure you know them before trying to claim this credit.  Here is a link to a recently released (6/11/2021) set of FAQs to help you find out if this credit will benefit your tax situation. https://www.irs.gov/newsroom/child-and-dependent-care-tax-credit-faqs#claiming 

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