Child Tax Credit – American Rescue Plan

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Key Points

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• Based on current law, the child tax credit is $2,000 per child with only half of the credit being refundable.
• On 2021 income tax returns, the credit will be fully refundable, and 17-year-olds will be eligible as qualifying children. The amount of the credit will be increased from $2,000 per child to $3,000 per child ($3,600 for children under 6).
• The amount of the credit over the current $2,000 amount is reduced by $50 for every $1,000 of modified AGI over $75,000 for single taxpayers ($150,000 for married filing joint and $112,500 for Head of Household). Once the additional amount of the credit is eliminated, the $2,000 credit will remain until the current law thresholds are reached ($200,000 for single, $400,000 for married filing joint, $120,000 for head of household).
• The IRS will be responsible for estimating taxpayers’ child tax credit amounts and advancing ½ of the eligible credit in monthly installments from July through December 2021.
• The IRS will also be setting up an online portal that taxpayers can use to opt-out of the advance payments or provide any information that could modify the amount of eligible credit.
• The credit and related advance payments will be reconciled on the taxpayer’s income tax return for the following year. Any advance payment received in excess of the eligible credit will increase taxable income. However, the bill provides a “hold-harmless” provision which prevents taxpayers from having to pay back excess payments of up to $2,000 per child if their modified AGI is $40,000 or less for single taxpayers ($60,000 for married filing joint). This safe harbor is reduced once AGI exceeds these thresholds and is completely eliminated once AGI is double the applicable threshold.

Related Resources

These resources connect the article topic with related Bowers service pages and approved professional reading.

• Tax Services
• Bowers Updates
• About Bowers
• Client Accounting & Advisory Services
• Harvard Business Review
• Accounting Today

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