In 2011, quite a few provisions that were put into effect with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001) will be expiring. One of those expiring provisions is the enhancement to the Child Tax Credit.
Presently, the credit equals $1,000 per qualifying child, and is a true credit against tax payable. This means that if you have less than $1,000 in tax payable, you would not receive a refund of the difference between your tax and the credit. However, if you happen to have more than one child, the additional amount is refundable.
Beginning with tax year 2011, unless something changes between now and then, the child tax credit will revert to $500 per qualifying child – again with the stipulation that it is a true credit, not refundable. The refundable bonus is available only if you have three or more qualifying children.
This change can have a significant impact on working families. Imagine – if you have three children, in 2009 you are eligible to receive a $3,000 refundable credit on your tax return. But beginning in 2011, you would only receive $1,500, also refundable. This works out to an additional $125 per month in tax if you happen to be in that situation. Keep this in mind as you plan your budgets for 2011.