The child tax credit is again in the news because of potential increases by Congress. On this episode, I look at the history and the requirements.


I also look at how the credit is both nonrefundable and refundable. That means that the nonrefundable portion takes care of the tax liability before the refundable portion is available. The refundable portion is called the additional child tax credit. Currently, the additional child tax credit is calculated as 15% of the taxpayer’s AGI in excess of $2,500, with the refund value capped at $1,400.


From current news on the proposed child tax credit changes:

The Democrats’ new proposal would increase the credit amount by $1,000 ($1,600 for those with children under 6) and allow taxpayers to receive the full amount as a refund. Additionally, the plan would make the credit payable in monthly installments of $250 and $300, respectively, rather than just once a year. The payments would start to phase out for individuals earning more than $75,000 a year or $150,000 for those married filing jointly.


If passed, the Treasury Department could issue advance payments of up to half the 2021 child tax credit starting in July based on families’ 2019 or 2020 tax return information. If there is any overpayment of the credit, individuals making less than $40,000 ($60,000 for couples filing jointly) will not need to repay the amount, nor will it be garnished from wages.

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