American Rescue Plan Child Tax Credit: What You Need to Know
Understand how the American Rescue Plan Child Tax Credit impacts eligibility, payments, and tax filing to ensure you receive the correct benefits.
The American Rescue Plan temporarily expanded the Child Tax Credit (CTC) to provide additional financial relief for families. This expansion increased the credit amount, made it fully refundable, and introduced advance monthly payments in 2021 to reduce child poverty and help families cover essential expenses.
Understanding this tax credit is important for those who may qualify. Key factors include eligibility rules, income limits, filing requirements, payment details, and how to reconcile any discrepancies when filing taxes.
Eligibility Requirements
To qualify for the expanded Child Tax Credit, families had to meet criteria related to the child’s age, residency, and relationship to the filer. A key change was the inclusion of 17-year-olds, who were previously ineligible. For the 2021 tax year, children under 18 at the end of the year could be claimed.
The child had to live with the taxpayer for more than half the year, following IRS dependency rules. Temporary absences for school, medical care, or other reasons did not necessarily disqualify a child if their primary residence remained with the filer. Additionally, the child needed a valid Social Security number.
The filer had to be a direct relative of the child. Eligible relationships included son, daughter, stepchild, foster child, sibling, or a descendant of any of these, such as a grandchild or niece.
Income Thresholds
The expanded Child Tax Credit phased out at certain income levels. For single filers, the phaseout began at $75,000; for heads of household, at $112,500; and for married couples filing jointly, at $150,000. These thresholds applied to the increased portion of the credit—amounts above the pre-existing $2,000 per child limit.
Once income exceeded these limits, the additional credit—$1,600 for children under six and $1,000 for those aged six to 17—was reduced by $50 for every $1,000 over the threshold. For example, a married couple earning $160,000 would see a $500 reduction per child from the expanded portion.
The original $2,000 credit remained available until income reached a second phaseout level—$200,000 for single filers and $400,000 for joint filers—after which the entire credit began to decrease.
Filing Procedures
Taxpayers claimed the expanded Child Tax Credit by reporting the correct information on their federal income tax return using Form 1040 and attaching Schedule 8812. Accuracy in reporting dependents was essential to avoid processing delays or IRS reviews.
For those who received advance payments in 2021, reconciling the amounts was required when filing their 2021 tax return. The IRS issued Letter 6419, detailing total advance payments received. Comparing this letter with tax records helped prevent errors. If advance payments exceeded the total credit a taxpayer qualified for, they may have needed to repay the difference unless they qualified for repayment protection, which applied to lower-income households.
Taxpayers who did not receive advance payments but were eligible for the full credit could claim the entire amount when filing. Filing electronically with direct deposit was recommended to speed up refunds and reduce errors.
Payment Structures
The expanded Child Tax Credit introduced advance monthly payments instead of requiring families to wait until filing their tax return. From July to December 2021, the IRS distributed half of the total credit in equal installments, with the remaining portion claimed when filing taxes.
Payments were based on the most recent tax return on file, typically 2020 or 2019 if the latest return had not yet been processed. This could cause discrepancies for taxpayers whose income, filing status, or number of dependents had changed. To address this, the IRS launched an online portal where individuals could update key details, such as marital status or the birth of a child.
Reconciliation Process
Since the expanded Child Tax Credit included advance payments, taxpayers had to reconcile the amounts received with their actual eligibility when filing their 2021 tax return. The IRS provided Letter 6419, detailing the total advance payments issued. Comparing this document with tax records helped avoid discrepancies that could delay refunds or create unexpected tax liabilities.
If a taxpayer received more in advance payments than they were eligible for, they may have needed to repay the excess. Repayment protection was available for lower-income households, reducing or eliminating the amount owed based on income and filing status. Those with an adjusted gross income below $40,000 for single filers, $50,000 for heads of household, and $60,000 for joint filers qualified for full repayment protection. Partial protection applied to those with incomes up to $80,000 (single), $100,000 (head of household), or $120,000 (joint). Households exceeding these limits had to return the full overpayment.
Taxpayers who did not receive the full credit through advance payments could claim the remaining amount when filing. This often applied to those who opted out of monthly payments, had a new dependent in 2021, or experienced income reductions that increased their eligibility. Filing an accurate return with complete documentation ensured any remaining credit was properly applied.