An expanded child tax credit for 2021 is about to become law. After some procedural wrangling in the Senate, Congress approved President Biden’s stimulus package to help tackle the coronavirus pandemic and stimulate the economy. Because the Senate made some changes to the House-crafted bill, titled the American Rescue Plan Act of 2021 (“American Rescue Plan”), the House had to revote on the revised bill before sending it to Biden’s desk for his signature. That final vote happened on Wednesday. One provision in the American Rescue Plan would, for one year, expand the child tax credit and make it fully refundable.
Presently, the child tax credit is worth $2,000 per kid under the age of 17 whom you claim as a dependent and who has a Social Security number. To qualify, the child must be related to you and generally live with you for at least six months during the year. The credit begins to phase out if your adjusted gross income (AGI) is above $400,000 on a joint return, or over $200,000 on a single or head-of-household return. Up to $1,400 of the child credit is refundable for some lower-income individuals with children, but these people must also have earned income of at least $2,500 to get a refund.
The American Rescue Plan would temporarily expand the child tax credit for 2021. First, the plan would allow 17-year-old children to qualify. Second, it would increase the credit to $3,000 per child ($3,600 per child under age 6) for many families. Third, it would remove the $2,500 earnings floor. Fourth, it would make the credit fully refundable. And fifth, it would allow half of the credit to be paid in advance by having the IRS send periodic payments to families from July 2021 to December 2021.