It will reduce it by the amount that you already received.
The child tax credit was increased for 2021 to $3,600 for children under 6 and $3,000 for children between 6 and 17. The IRS started sending this money out to families in July of last year - up to $300 a month for each child under 6 and $250 a month for each child between 6 and 17. In January you should receive Letter 6419 from the IRS. This letter will show all the advance child tax credit payments that the IRS sent to you. When you are doing your taxes for 2021 you will enter in the amount that you received already and it will reduce the credit that you get on your return by that amount. So, if you had one child under six and you received all your payments last year the credit of $3,600 on your return would be reduced to $1,800.
In some cases, child tax credits were sent to a taxpayer who may have claimed a child in 2020 but will not be claiming that child in 2021. In that case the child tax credit will have to be paid back to the IRS on your tax return.
The IRS has prepared a number of answers to questions regarding this topic and they are worth looking at if you want to learn more.
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