Various changes were made to the Child Tax Credit and Dependent Care Tax Credit for 2021, including:
- Dependent Care Expenses qualifying for the dependent care tax credit have increased from $3,000 to $8,000 for one qualifying child and from $6,000 to $16,000 for two or more qualifying children.
- The allowed dollar amount parents can fund into their pre-tax Dependent Care Benefit Plan through their employer Flexible Spending Account has been increased from $5,000 to $10,500 (if this change has been adopted by your employer).
- The Child Tax Credit, available to qualifying taxpayers based upon their income, has been increased from $2,000 per child under the age of 17 to $3,000 per child under the age of 18 or $3,600 per child for children under the age of 6. However, the income threshold for taxpayers to qualify for this tax credit has been significantly reduced from the 2020 income threshold.
- Qualifying taxpayers will begin to receive advance payments of the Child Tax Credit beginning in July 2021. The advance payments are determined based upon a taxpayer’s previously filed 2020 or 2019 tax return and who qualify for the child tax credit based upon the income reported on their most recently filed tax return (2020 or 2019). These advance payments will be paid monthly beginning July 2021. Qualifying taxpayers will be pre-paid from the US Treasury: 50% of their anticipated 2021 child tax credit ratably over the last 6 months of 2021 (maxed at $250 or $300 per child per month). The remaining 50% of the tax credit will be included the taxpayer’s 2021 filed tax return. Taxpayers can choose to opt out of the government pre-payments and “Unenroll from the Advance Payments” via the following IRS link: https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.
More info about these expanded tax breaks for families is available at: 2021 Child Tax Credit and Advance Child Tax Credit Payments: Resources and Guidance.