Tax Refunds, Credits, and Child Support

The American Rescue Plan Act of 2021 (hereinafter “Plan”), also called the COVID-19 Stimulus Package, was passed by Congress and officially signed into law by President Joe Biden on March 11, 2021.  The Plan seeks to aid the economy in recovering from the effects of the COVID-19 pandemic. One significant change the Plan provides for is a new federal enhanced child tax credit beginning July 15, 2021. Statistics show that the credit will go to roughly 39 million households with about 65 million children. For the 2021 tax year, the enhanced maximum child tax credit is $3,600 for children younger than age six (6) and $3,000 for children between the ages of six (6) and seventeen (17).

The enhanced child tax credit is per child in each household and is projected to be distributed monthly throughout the 2021 tax year. Therefore, a household that has three children ages 3, 9, and 14, for example, could receive a total of $800 per month (i.e. $300 per month for the 3-year-old and $250 each per month for the 9-year-old and 14-year-old). Whether families are eligible for the full credit, of course, depends on the household’s monthly income.

 

As of now, families eligible for the enhanced child tax credit do not need to take specific action to receive the credit.  The IRS will use the information on file for the 2020 tax year to determine taxpayers’ eligibility.  Just as with the stimulus checks, most child tax credits will be sent by direct deposit.  The IRS is projected to begin issuing credit payments by July 15, 2021.

 

With child tax credit payments beginning in July and the IRS currently in the process of issuing tax refunds on unemployment benefits in two phases, many individuals may expect to see an increase in their checking account funds in the coming weeks. This comes at a perfect time when many look to take advantage of the warm weather and plan summer vacations. However, taxpayers should beware that some people may see a small refund and others, no refund at all.  This is because the IRS may seize the refunds to pay past-due debts, such as child support.  Although COVID-19 has placed a financial strain on many Americans, it is crucial to stay up to date with child support payments, especially if you are under a Court Order to pay a specific amount per month.  If you have failed to maintain proper monthly payments, not only could you be facing a possible Order to Appear and Show Cause as to why you should not be held in contempt of Court, but you could also be seeing a smaller tax refund or no refund at all to offset your nonpayment of the debt.