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1 1 (September 23, 2021)

handle is hein.crs/goveeoh0001 and id is 1 raw text is: Congressional SResearch Service The Impact of a Fully Refundable Child Tax Credit Updated September 23, 2021 Congress is currently considering an extension of temporary changes to the child tax credit that were enacted for 2021 under the American Rescue Plan Act (ARPA; P.L. 117-2). ARPA made three changes to the child credit that affect the credit amount taxpayers will receive: (1) extending the eligibility age of qualifying children to include 17-year-olds; (2) increasing the maximum amount of the credit, with a larger maximum credit for young children; and (3) eliminating the prior-law formula for the refundable portion of the credit. This third change is sometimes referred to as making the credit fully refundable. (The law also temporarily changed how the credit is being delivered for 2021.) The Biden Administration has proposed making full refundability permanent, while temporarily extending other provisions of the ARPA expansion for four more years, through the end of 2025. A similar proposal is included in proposed legislation released on September 10 by Chairman Neal of the Ways and Means Committee. This Insight provides an overview of what full refundability means in the context of the 2021 child credit and summarizes recent research examining the impact of full refundability. What is full refundability? In the context of the ARPA-expanded child credit, full refundability means the credit is the same amount per child for low- and moderate-income taxpayers, irrespective of their income. (Higher-income taxpayers are subject to a phaseout of the credit.) Specifically, by making the child credit fully refundable for 2021, ARPA temporarily eliminated the prior-law formula used to phase in the credit for lower-income taxpayers. Under the prior-law formula, a taxpayer with more than $2,500 of earned income was eligible to receive a partial benefit from the credit. Their benefit amount was equal to 15% of earned income above $2,500, subject to a limit of $1,400 per qualifying child. These aspects of the formula are illustrated in points 0-0 in several figures below. Full refundability of the ARPA-expanded child credit is illustrated as a horizontal pink line at the maximum credit amount of $3,600 per young child in the figure below. A taxpayer with one young child would be eligible for the same credit amount ($3,600) regardless of whether they have no income, $10,000 of income, or $100,000 of income. If instead all the ARPA changes had been adopted except full Congressional Research Service https://crsreports.congress.gov IN11752 CRS INSIGHT Prepared for Members and Committees of Congress

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