Refundable Tax Credits for Families in 2021
January 25, 2022
Refundable Tax Credits for Families in 2021
The American Rescue Plan Act (ARPA; P.L. 117-2 ) expanded three tax credits available to families for 2021 (i.e., credits
generally claimed on 2021 federal income tax returns). Key aspects of these credits are summarized below.
Child Tax Credit
Child and Dependent Care Tax
Earned Income Tax Credit (EITC)
Credit (CDCTC)
ARPA
ARPA increased the child tax credit for ARPA increased the child and
ARPA increased the earned income tax
Expansion for low- and moderate-income taxpayers for dependent care credit (CDCTC) for
credit (EITC) for low-income workers
2021
2021 by making the credit ful y refundable workers with child and dependent care without qualifying children (i.e., “childless”
and increasing the credit amount (as well expenses for 2021 by increasing the
EITC) for 2021 by increasing the credit
as increasing the maximum eligibility age). credit rate, increasing the cap on eligible rate, increasing the phaseout rate, and
The law also provides that part of the
expenses, and making the credit
modifying the range of income over
credit be advanced before taxes are filed. refundable.
which the credit phases in and phases out
Some of the changes are highlighted in the Some of the changes are highlighted in
(resulting in a larger maximum credit).
chart below, which il ustrates the
the chart below, which il ustrates the
Some of the changes are highlighted in
relationship between the credit amount
relationship between the credit amount the chart below, which il ustrates the
(vertical axis) and taxpayer income
(vertical axis) and taxpayer income
relationship between the credit amount
(horizontal axis) in 2021 before and after (horizontal axis) in 2021 before and after (vertical axis) and taxpayer income
ARPA.
ARPA.
(horizontal axis) in 2021 before and after
ARPA.
Summary of A refundable tax credit available to
A refundable tax credit available to
A refundable tax credit available to
Credit
families with qualifying children under 18 working families with qualifying
working families.
years old for 2021. The credit is “ful y
individuals and dependent care expenses The credit amount depends on the
refundable” in 2021, meaning eligible low- for 2021.
taxpayer’s earned income, number of
income families can receive the “ful ” or
The credit amount depends on the
qualifying children, and marital status.
maximum amount of the credit,
amount of out-of-pocket expenses the
irrespective of their earned income.
taxpayer incurred for the care of a
The credit amount depends on the
qualifying individual so that the taxpayer
number and age of qualifying children, and can work. General y, qualifying individuals
for higher-income taxpayers subject to the are dependent children under 13 years
credit’s phaseout, their marital status and old or certain adults incapable of self-
income for 2021 (i.e., as provided on 2021 care.
income tax returns).
(Note: Refundable for 2021 only.)
Maximum
Maximum credit for 2021 is
Maximum credit for 2021 is
Maximum credit for 2021 for those with
Amount of
$3,600 per young child (0-5 years
$4,000 for a taxpayer with one
0 children: $1,502
Credit
old)
qualifying individual and maximum 1 child: $3,618
$3,000 per older child (6-17 years
qualifying expenses ($8,000)
2 children: $5,980
old)
$8,000 for a taxpayer with two or 3+ children: $6,728
Summed over the number of qualifying
more qualifying individuals and
(Note: ARPA temporarily expanded the EITC
children.
maximum qualifying expenses
($16,000)
for taxpayers with no qualifying children for
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link to page 2 link to page 2 link to page 2 Refundable Tax Credits for Families in 2021
Child Tax Credit
Child and Dependent Care Tax
Earned Income Tax Credit (EITC)
Credit (CDCTC)
For example, a family with two older
(Note: Unlike the child credit and the EITC, 2021. ARPA did not change the EITC
children and one young child is eligible for the CDCTC’s value is based in part on
formulas for taxpayers with children.)
a maximum credit of up to $9,600.
expenses incurred [for childcare or
dependent care]. Research suggests lower-
income taxpayers tend to have less than the
maximum amount of qualifying expenses.)
Income
Taxpayers are eligible for the maximum
Taxpayers are eligible for the maximum Taxpayers are eligible for the maximum
Range
credit amount if 2021 income is
credit amount if 2021 income is between credit amount if 2021 income is between
for Maximum below $112,500 for head of household 1 qualifying individual: $8,000-
0 children: $9,820-$11,610 if unmarried
Amount of
filers (unmarried adults with dependents)a $183,000 (al tax filing statuses)
/ $9,820-$17,550 if married
Credit
below $150,000 for married joint filers 2 qualifying individuals: $16,000-
1 child: $10,640-$19,520 if unmarried /
(most married couples file their income
$183,000 (al tax filing statuses)
$10,640-$25,470 if married
tax return jointly)
(Note: Under existing law [and unchanged 2 / 3+ children: $14,950-$19,520 if
by ARPA], expenses used to calculate the
unmarried / $14,950-$25,470 if married
credit cannot exceed the taxpayer’s earned
income. Hence, lower-income taxpayers
must have earned income greater than or
equal to the maximum amount of qualifying
expenses to receive the maximum credit.)
Limitation for No provision barring eligibility based on
No limitation.
Nonresident aliens are general y ineligible.
Nonresident taxpayer’s residency, but the child must be
Aliensb
a U.S. citizen, national, or resident.
Taxpayer ID Taxpayers (and if applicable,
No ID requirement for this provision.
Taxpayers (and if applicable,
Requirement spouses): SSNs or ITINs
spouses): SSNs associated with work
(SSN/ITIN)c
authorization
Qualifying children: SSN associated
with work authorization
Qualifying children: SSN associated
with work authorization
Method of
Partially advanced/remainder
Claimed on tax return:
Claimed on tax return:
Receipt
claimed on tax return:
The benefit is claimed on a 2021 tax
The benefit is claimed on a 2021 tax
50% of total credit amount was advanced return (general y filed in 2022).
return (general y filed in 2022).
during the last 6 months of 2021; the
remainder is claimed as a tax credit on
2021 return (general y filed in 2022).
The Internal Revenue Service (IRS) used
information on 2020 income tax returns
to estimate and advance the 2021 credit (if
2020 data were unavailable, advanced
payments were based on 2019 data).
CRS
CRS Insight IN11613, The Child Tax Credit: CRS Insight IN11645, The Child and
CRS Insight IN11610, The “Childless” EITC:
Resources
Temporary Expansion for 2021 Under the
Dependent Care Tax Credit (CDCTC):
Temporary Expansion for 2021 Under the
American Rescue Plan Act of 2021 (ARPA;
Temporary Expansion for 2021 Under the American Rescue Plan Act of 2021 (ARPA;
P.L. 117-2)
American Rescue Plan Act of 2021 (ARPA; P.L. 117-2)
CRS Report R46900, The Expanded Child P.L. 117-2)
CRS Report R43805, The Earned Income
Tax Credit for 2021: Frequently Asked
CRS Report R44993, Child and
Tax Credit (EITC): How It Works and Who
Questions (FAQs)
Dependent Care Tax Benefits: How They
Receives It
Work and Who Receives Them
Sources: CRS analysis of P.L. 117-2, the Internal Revenue Code (IRC), IRS Revenue Procedure 20-45, and IRS Revenue Procedure 21-23.
Notes:
a. In some circumstances, an unmarried taxpayer with a qualifying child for the child tax credit may file their taxes as a single filer, as
opposed to a head of household filer. See IRC Section 152(e). The phaseout threshold for single filers is $75,000.
b. Noncitizens inside or outside the United States may be liable for U.S. income taxes. Under the IRC, a noncitizen is categorized as either a
resident or nonresident alien, which determines the person’s tax treatment. In general, a noncitizen is a nonresident alien unless he or she
meets the qualifications under either residency test: (1) Green card test, or (2) Substantial presence test. Various exceptions apply.
c. By law, individuals must provide a unique identifying number when they file tax returns with the IRS. General y, an individual’s taxpayer
identification number is their Social Security number (SSN). Individuals who are not eligible to receive an SSN are required to use an
individual taxpayer identification number (ITIN) when filing their tax returns. ITINs are issued by the IRS for federal tax purposes only.
IF12025
Margot L. Crandall-Hollick, Specialist in Public Finance
https://crsreports.congress.gov
Refundable Tax Credits for Families in 2021
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