ARPA’s Temporary Expansion of Child Tax Credit for 2021


American Rescue Plan Act of 2021 (ARPA)

The American Rescue Plan Act of 2021 or ARPA is a financially huge stimulus for the American economy. It is a $1.9 trillion major legislation passed by the One Hundred Seventeenth (117th) United States Congress and signed to become law on March 11, 2021, by newly elected President Joe Biden. ARPA is also known as the Covid-19 Stimulus Package or American Rescue Plan. 

With the ongoing economic decline and negative impact of the Covid-19 pandemic on the American economy and public health, the United States government diligently used this strategy to boost its immediate recuperation from its predicament.

Child Tax Credit 2020 – CTC Basics Before the ARPA Law

To be able to appreciate ARPA’s Temporary Expansion of Child Tax Credit for the tax year 2021, we need to review the basics of CTC (Child Tax Credit) before the ARPA law or specifically Child Tax Credit 2020 instead of answering the general question of, what is child tax credit

In terms of amount, the Child Tax Credit was $2,000 per qualifying dependent child. Moreover, a qualifying dependent child before the ARPA law was defined as a child below 17 years of age. With the following conditions:

  • A child related to the taxpayer who lived with him for at least six (6) months during the year
  • A U.S. citizen, national, or a U.S. resident 

The amount of $2,000 Child tax Credit was decreased if your modified adjusted gross income or MAGI was more than $200,000 or above $400,000. Assuming you filed jointly with your spouse. 

The reduction rate would be $50 per $1,000 or part of $1,000.  Modified adjusted gross income is your household’s Adjusted Gross Income or AGI inclusive of any tax-exempt interest income plus other deductions being added back.

ARPA’s Temporary Expansion of Child Tax Credit – Rules for 2021

The Child Tax Credit (CTC) is expanded temporarily for the year 2021 in terms of amount and eligibility or qualified dependent’s age. How much is the child tax credit anew? A reasonable increase is approved. A new child tax credit age limit is also revised, as you can see on the following bullets:

  • The qualifying dependent child will include 17-year-old dependent, those who have not turned 18 years of age by the end of 2021
  • The Child Tax Credit is now $3,000 per qualifying dependent child ($2,000 previously)
  • For dependents under six (6) years of age at the end of the year, CTC is $3,600
  • The bigger credit amounts will be under their own phase-out rule 

Fully Refundable Child Tax Credits (CTC) for 2021

You can still get the regular $2,000 Child Tax Credit considering the existing phase-out rules in case you do not qualify to claim the revised CTC for 2021. However, the phase-out rules are applicable regardless of the refund claim and the family credit amounting to $500 for dependents other than the qualified dependents are not refundable.

The 2021 Child Tax Credits Advance Payments

You need to pay the excess amount in case you receive advance Child Tax Credits (CTC) over the actual CTC allowable to you for the year 2021. 

In most cases, the excess may be minimized to a reasonable amount by controlling the amount in proportion to tax increase liability, thus enabling them to save a part of the amount in excess. This may be true for some low to moderate income-earning taxpayers.

A Huge Financial Stimulus for the American Economy 

Such a move to temporarily expand the Child Tax Credits will help the American people to neutralize the effects of the pandemic and economic recession. 

This may also affect tax payment collection but looking at the bigger picture, these adjustments though temporary it may seem, still bring confidence to the government. With increased confidence comes greater production and support for the economy.

If you need professional assistance, contact Manay CPA!

Leave a Reply

Your email address will not be published. Required fields are marked *