INSIGHTi
The Child Tax Credit: Temporary Expansion
for 2021 Under the American Rescue Plan Act
of 2021 (ARPA; P.L. 117-2)
Updated March 15, 2021
In recent years, there has been increased interest in providing direct benefits to families with children to
reduce child poverty in the United States, sometimes in the form of tax benefits. The National Academy
of Sciences (NAS) included a “child al owance” as part of a package of policies to reduce child poverty
over 10 years. (Senator Romney has also proposed a child al owance.) Some research has suggested that
increasing the amount of the child tax credit that low-income families receive would substantial y reduce
child poverty, boost future earnings, and potential y improve future health and education outcomes.
In the 116th Congress, there were several legislative proposals to expand the child tax credit, especial y for
lower-income families that tend to receive little or no benefit from the current credit. In the 117th
Congress, a temporary one-year expansion of the child credit (for 2021) was included in the American
Rescue Plan Act of 2021 (ARPA; P.L. 117-2).
This Insight provides a summary of the child tax credit prior to ARPA and an overview of the temporary
child credit expansion under ARPA for 2021.
How would the child credit have been calculated in 2021 before ARPA?
For 2021, prior to ARPA, the child tax credit would al ow eligible taxpayers to reduce their federal
income tax liability by up to $2,000 per qualifying child. A qualifying child was general y any dependent
child under 17 years old. The credit was reduced in value, or phased out, by $50 for every $1,000 of
income over $200,000 ($400,000 for married couples who file joint tax returns).
If a taxpayer’s income tax liability was less than the maximum value of the child tax credit, the taxpayer
may have been eligible to receive al or part of the difference as a refundable credit. The refundable
portion of the child tax credit—the amount which was greater than income taxes owed—is referred to as
the additional child tax credit (ACTC) and was calculated using what is sometimes referred to as “the
earned income formula.” Under the earned income formula, the ACTC gradual y increased, or phased in,
as earned income rose above $2,500. The maximum amount of the ACTC was $1,400 per qualifying
Congressional Research Service
https://crsreports.congress.gov
IN11613
CRS INSIGHT
Prepared for Members and
Committees of Congress

---

Congressional Research Service
2
child. CRS estimates that about one in every five taxpayers (19%) with a credit-eligible child had low
incomes that resulted in them receiving less than the maximum credit.
After 2021, the ARPA expansion described in this Insight is scheduled to expire, and the credit would thus
revert to the “prior law” parameters described above until the end of 2025.
How does the child credit change in 2021 under the American Rescue
Plan Act?
The American Rescue Plan Act of 2021 (ARPA; P.L. 117-2) makes several temporary changes (for 2021
only) that expand the child tax credit, primarily for low-income taxpayers. These changes include
 Expanding eligibility to 17 year olds: The law increases the maximum age for an
eligible child from 16 to 17.
 Making the credit fully refundable: The law eliminates the ACTC phase-in based on
earned income and eliminates the ACTC cap of $1,400 per child. Hence, the child credit
is “fully refundable” and the full value is available to otherwise eligible taxpayers with no
earned income.
 Increasing the credit for low- and moderate-income taxpayers, with larger increases
for younger children: The law increases the maximum amount of the credit from $2,000
per child to $3,600 per child for a young child (0-5 years old) and $3,000 per child for an
older child (6-17 years old), as il ustrated in the figures below. General y, this increase in
the maximum child credit of $1,600 per young child and $1,000 per older child gradual y
phases out at a rate of 5% as income exceeds specified thresholds until the credit amount
equals the current-law maximum of $2,000 per child. These thresholds are $75,000 for
single filers, $112,500 for head of household filers, and $150,000 for married joint filers.
(The actual income level at which the credit phases down to $2,000 per child depends on
the number and age of qualifying children.) For many families, the credit then plateaus at
its prior-law level of $2,000 per child and phases out when income exceeds the current-
law threshold of $200,000 ($400,000 for married joint filers). For larger families, the
credit may never plateau at the $2,000 per child level, but simply continue to gradual y
phase out.
These changes will increase the amount of the credit for low- and moderate-income taxpayers, while
higher-income families will general y receive the same benefit as under prior law (unless they have an
eligible 17-year-old), as il ustrated in the figures below.
The Joint Committee on Taxation estimates this temporary one-year expansion of the child credit would
cost $110 bil ion, mostly in FY2021 and FY2022 (these estimates also include the relatively smal er cost
of permanently extending the credit to residents of U.S. territories).

---

Congressional Research Service
3

---

Congressional Research Service
4

---

Congressional Research Service
5
How does ARPA advance the credit?
ARPA directs the Treasury to issue half of the expected 2021 credit in periodic payments beginning July
1, 2021 (these periodic payments wil general y be equal in amount). Taxpayers wil claim the remaining
half of the total 2021 credit when filing their 2021 income tax return in early 2022. The expected 2021
credit amount is the total amount the taxpayer would be expected to receive in 2021 (and not just the
amount of the credit that exceeds income taxes owed).
The amount of the payments advanced in 2021 are estimated based on 2020 income tax data or, if
unavailable, 2019 income tax data. Families can update this information on a portal in 2021.
The IRS can adjust income tax withholding to take into account the advanced child credit.
Will taxpayers need to repay the advanced credit?
In cases where a taxpayer receives more in advanced payments than they are eligible for—due to changes
in income, filing status, or number of children—taxpayers wil general y need to repay any excess credit.
Repayment may either reduce their 2021 tax refund or result in the taxpayer being required to remit
payment to the IRS.
In cases where an incorrect amount of the advanced payment is due to net changes in the number of
qualifying children, up to $2,000 per child of the advanced payment is protected from repayment (the
“safe harbor” amount) for lower-income taxpayers. This safe harbor amount gradual y phases down as
income increases. Net changes in number of qualifying children can occur, for example, when a single
parent had two children in 2020 (the year of the information used to estimate the advanced credit), but,
because one of their children now lives with the other parent or another relative, only one child in 2021.
Below is an il ustrative example of how much would need to be paid back if an unmarried taxpayer
receives an advance payment based on a projection that they have two young children in 2021 (and so are
estimated to be eligible for a $7,200 credit, of which $3,600 would be advanced), but in actuality, they
have one or none.

---

Congressional Research Service
6

---

Congressional Research Service
7
A more detailed overview of determining the payback amount can be found in the figure below.

---

Congressional Research Service
8

---

Congressional Research Service
9


Author Information

Margot L. Crandall-Hollick

Acting Section Research Manager




Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

IN11613 · VERSION 6 · UPDATED

---