The second monthly payments of the child tax credit hit Americans’ bank accounts earlier this month, continuing an experiment in family and fiscal policy. Democrats tout the monthly payments as a way to reduce child poverty and change annual lump-sum tax refunds into a more reliable stream of income. Republicans have criticized the changes for breaking the prior link between the credit and earned income.
The child tax credit is a federal benefit that reduces income tax liability for people with children. It was created in 1997 and since then has expanded several times. It is a credit that reduces taxes owed as opposed to a deduction that reduces taxable income. The temporary changes in effect for 2021 make it a near-universal monthly child allowance, far from the annual tax break it started as. The changes came about as part of the $1.9 trillion Covid-19 stimulus law passed in March.
Here is how it works.
How big is the credit?
Until 2021, the credit was $2,000 per child under age 17, based on the child’s age at the end of the year. For 2021 only, Congress increased the credit to $3,000 for children ages 6 to 17 and $3,600 for children under age 6.
Are there limits based on income?
On the low end, there were limits, but they have been removed for this year. Until 2021, low-income households that didn’t owe income taxes could get as much as $1,400 of the $2,000 credit. This year, they can get the full credit even if they have no income.
