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Unwelcome Surprises in the Child Tax Credit


The enhanced child tax credit created by the American Rescue Plan Act of 2021 (P.L. 117-2) is one of many recent Congressional efforts designed to help taxpayers financially weather the pandemic. However, this relief is different from others. Stanley Rose CPA, a Managing Director in the tax practice of Baker Newman Noyes, explains.

Aug 13th 2021
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The child tax credit is unlike other tax benefits and practitioners should educate their clients now to avoid any unpleasant April 15 surprises.

The enhanced credit is built on the original child tax credit found in IRC Sec. 24.  When paired, the result is a more robust combined credit available only for tax year 2021. For tax year 2022, the enhanced credit disappears, and the original credit survives. 


The 2021 combined credit is unique in four notable ways:

1. It is fully refundable.

2. The enhanced portion of the credit phases out at lower income levels than the original portion.

3. Part of the combined credit is paid to taxpayers in advance.

4. Unlike other forms of pandemic relief (like the advance stimulus payments), some portions of this credit may need to be paid back if 2021 income is higher than the IRS projects.

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