The child tax credit is a tax credit for parents based on their income level and the number of dependent children they have. This year brought big changes to how the tax credit works and who was eligible to receive it: The American Rescue Plan Act of 2021 temporarily changed the child tax credit to make it more accessible for lower income families and increased the refund amount. The American Families Plan, proposed by the White House in April, aims to make those changes permanent.
How has the child tax credit changed over time?
Initially, the child tax credit provided the biggest benefits to upper- and middle-class families. Congress first enacted the child tax credit in 1998 as a $500 per child non-refundable credit. Non-refundable means the credit could only decrease the amount of federal taxes a parent owed to the Internal Revenue Service (IRS). Families eligible for more credit than they owed in federal taxes did not receive the remaining money. The child tax credit grew to $1,000 per child in 2001. It also became partially refundable, giving parents access to a portion of the credit left over after paying federal taxes.
