The American Rescue Plan Act, passed by President Joe Biden in March 2021, provided for an expanded version of the Child Tax Credit. Before the plan, the credit provided a tax credit of $2,000 to parents for each of their children, with no distinction based on age. The credit could only be claimed on one’s tax return, and if a family owed less than $2,000 in taxes, the credit could not be claimed in full.
The American Rescue Plan Act changed all of this. The credit was raised to $3,000 or $3,600 per child per year, depending on the child’s age; it was made fully refundable, meaning that it would still be paid to families who could not discount all of it from their taxes; and, most importantly, half of it is being sent out in advance, in the form of monthly checks from July until December. July’s checks have mostly arrived by now, and August’s are on their way, with the next round of checks set to be distributed on Wednesday, September 15.
This tax credit has proven to be very popular with American families, to the extent that some are pushing for the credit to be made permanent. However, the American Rescue Plan Act also raised another significant tax credit that has received far less attention: the “Child and Dependent Care Tax Credit,” which, according to a recent Bipartisan Policy Center survey, roughly half of all Americans are completely unaware of.
As they sound very similar and fulfill a similar purpose, the two tax credits are sometimes conflated, but they are substantially different in their details. While the Child Tax Credit is intended to cover general child-associated costs, the Child and Dependent Care Tax Credit reimburses parents for specific expenses that they can show they spent on their children, although the rules for how this money can be spent and what expenses can be deducted are somewhat stricter.
Under the old rules, parents could claim $3,000 in expenses for up to two children, for a maximum credit of $6,000. The American Rescue Plan Act nearly tripled this payout, allowing families to claim up to $8,000 per child, or $16,000 in total. This is substantially more than the Child Tax Credit provides; for example, a family of two high school-aged children could receive only $6,000 directly from the Child Tax Credit.
And, like the Child Tax Credit, the American Rescue Plan made the Child and Dependent Care Tax Credit fully refundable, meaning that families without tax liabilities can still claim the payments as cash.
Trevor Filseth is a current and foreign affairs writer for the National Interest.