We recently blogged regarding the third round of stimulus payments which was one of the many provisions included in the American Rescue Plan.  As highlighted in that blog, eligible taxpayers will receive up to $1,400 for each dependent claimed on their tax returns.  In addition to eligible taxpayers receiving a stimulus for dependents, the American Rescue Plan made changes to the Child Tax Credit and the Child and Dependent Care Credit which will further benefit eligible taxpayers with children.

Child Tax Credit

For the tax year 2021, the following changes have been made:

1. The credit has been increased from $2,000 per child to $3,000 per child.
2. Children 17 years old and younger are now covered by the Child Tax Credit.
3. Those eligible for the 2021 Child Tax Credit will receive advance payments which will be made periodically from July 1, 2021, through December 31, 2021.
4. The Child Tax Credit is now fully refundable, meaning if you have no income you would still be eligible for the Child Tax Credit.
5. The Child Tax Credit is now extended to Puerto Rico and the U.S. Territories for the first time.

Child and Dependent Care Credit

For the tax year 2021, the American Rescue Plan has raised the dollar limit on employment related child and dependent care expenses and increased the maximum reimbursement percentage for eligible taxpayers.  The dollar limit has been raised from $3,000 to $8,000 for one qualifying child or dependent and from $6,000 to $16,000 for two or more qualifying children or dependents.  Additionally, the maximum reimbursement has increased from 35% to 50%.  As a result, the maximum reimbursement percentage has increased from $4,000 for one qualifying child or dependents to $8,000 for two or more qualifying children or dependents.

Due to the changes made to the Child Tax Credit and Child and Dependent Care Credit for 2021, many eligible taxpayers may receive a tax refund that they do not normally receive.  In the event that you are in a pending divorce action and you have children, it is important to take the changes to the Child Tax Credit and Child and Dependent Care Credit for 2021 into consideration.

The material in this blog is meant only to provide general information and is not a substitute nor is it legal advice to you.  Readers of this article should seek specific legal advice from legal counsel of their choice.  If you need legal assistance, Hanna Kirkpatrick can be reached at 516-393-8295 or hkirkpatrick@jaspanllp.com.