Are You Eligible for Advance Child Tax Credit?

You've probably been hearing a lot about the child tax credit payments that the IRS is sending many American families. You may have already seen the money show up in your bank account. 

This episode will review what the child tax credit is and who qualifies for it. You'll find out how much you could receive and if it could affect your future tax refund.

What Is the Child Tax Credit?

The child tax credit isn't a new benefit for Americans - it's been around since 1997. However, due to COVID relief, known as the American Rescue Plan of 2021, the credit has changed significantly for a limited period.

If you have kids, you're probably familiar with the child tax credit. But if you don't, the credit may be news to you. So, here's a primer. 

The child tax credit is a federal benefit for qualifying taxpayers with one or more qualifying dependent children. It puts more money back in the pockets of families by reducing the amount of tax they owe or increasing their tax refunds. 

Unlike a tax deduction, a tax credit cuts your tax bill on a dollar-for-dollar basis, making it more valuable. For instance, if you owe $1,000 in taxes and qualify for a $250 tax credit, your tax liability gets cut to $750. 

Let's compare that scenario to getting a $1,000 tax deduction. A deduction doesn't reduce the actual amount of tax owed but instead reduces your taxable income. Let's say you qualify for a $1,000 tax deduction. Depending on your average tax rate, it may end up saving you about $200 in taxes, which is much less than for a $1,000 tax credit.

How Much is the Child Tax Credit?

How much money you could save by claiming the child tax credit depends on your income and family size. Before the pandemic, it paid qualified taxpayers $2,000 per child under age 17. 

Legislation boosted the credit to $3,000 per child under age 18, starting in 2020. Additionally, if you have a child under age six, you qualify for a $3,600 credit.

Another change for 2021 is that the child tax credit is fully refundable. That means you receive it even the amount exceeds what you owe in taxes. 

For example, if you owe $1,000 in taxes and qualify for a $3,000 credit, the IRS pays you the...

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