The child tax credit looks very different in 2021 compared to previous years. First, the credit has been increased so that it brings in more money. Plus, half is paid in monthly installments so beneficiaries can get their money earlier rather than having to wait for a tax refund.
And this year, the credit is also fully refundable. This means that someone who owes no tax can still get the full value of the credit.
The improved child tax credit has already had a huge impact on Americans’ finances. For starters, many families were able to cover their expenses more easily. And with two more payments still pending for this year, beneficiaries have the option to fill their savings accounts and purchase protection against unexpected expenses.
Unfortunately, the current version of the child tax credit is not likely to become a permanent part of the tax code. While lawmakers initially wanted to go this route, Democrats were forced to cut some programs to advance their $ 1.75 trillion spending proposal. At this point, they are just pushing to keep the improved version of the child tax credit for another year.
But a provision of the subsidized credit could become permanent. And that alone would benefit many households.
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Full refund may be here to stay
This year, the child tax credit is worth up to $ 3,600 for children under 6 and up to $ 3,000 for children 6 to 17 years old. When this benefit ends, the credit will be a maximum of $ 2,000 per eligible child.
But even once that happens, those who are waiting to receive the credit may be able to get all of their $ 2,000 – even if they don’t owe the IRS any tax. Previously, only $ 1,400 of the $ 2,000 child tax credit was refundable, so families with no tax payable could not take full advantage of the credit. But now lawmakers are including permanent full repayment of credit as part of their expense bill.
What can the Children’s Tax Credit do for you?
Early data shows that the strengthened child tax credit has successfully lifted 3.5 million children out of poverty and reduced child hunger rates. Even though the higher credit value will not become a permanent part of the tax code, paying off the credit in full is likely to help many families by putting extra money in their pockets.
That said, one downside is that in the future this money may only be available as a tax refund. And that means families who don’t normally file taxes may have to do so to get their money.
This year, it was possible to obtain the child tax credit without a tax declaration. And to be clear, filing income tax is not something everyone has to do, as income that is low enough can be exempt.
If you have benefited from your child tax credit payments this year, be sure to claim the credit in future years. Even if credit is worth less, it could still help you consolidate your finances.