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Parents could start receiving the new $3,000 child tax credit by summer—here's how it works

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On Saturday, the Senate voted to pass the $1.9 trillion American Rescue Plan Act, which includes provisions that increase the child tax credit to $3,000 per child ages 6 to 17 and $3,600 annually for children under 6 for the tax year 2021.

And Americans with children under 18 may start receiving a portion of the new credit as early as this summer.

Under Saturday's legislation, the IRS could start providing advances on the 2021 credit through periodic payments of $250 for school-aged children starting as early as July, depending on what the Treasury Department determines is workable. Under the proposed schedule, which could be as frequent as monthly, families could receive nearly half of their total child tax credit this year and then claim the remaining amount on their 2021 tax returns.

"This plan gives those families who are struggling the most the help and the breathing room they need to get through this moment," President Joe Biden said in a statement Saturday

The new enhanced benefits, which specifically cover teens who are 17 for the first time, are income-based and would start to phase out for individuals earning more than $75,000 a year or $150,000 for those married filing jointly. 

From there, the credit would be reduced by $50 for every additional $1,000 of adjusted gross income earned. That means the $3,000 credit provided to parents of a child aged 6 to 17 would be phased out completely for individuals earning $95,000 and those making $170,000 and filing jointly. 

Families that are ineligible for the new $3,000 credit due to earning higher adjusted gross incomes would still be able to claim the $2,000 per child credit which is available to those making up to $200,000 ($400,000 for married couples filing jointly). 

The Covid-19 relief package would also make the benefit fully refundable. Under the current child tax credit, if taxpayers' credits exceed their taxes owed, they only can get up to $1,400 as a refund. But under the new rules, they could receive the full $3,000 or $3,600 as a refund, depending on the child's age. 

Parents don't have to be employed to get the new child tax credit. The new provisions allow households with no income to claim the credit. This is a major change, as previous rules limited the credit to those earning at least $2,500. This meant that families with very low incomes did not receive the full credit previously.

The American Rescue Plan also extends the child tax credit to those living in U.S. territories.

The House is set to vote on the Senate version of the American Rescue Plan on Tuesday before it heads to Biden's desk for his signature this week.

Check out: The best credit cards for building credit of 2021

Don't miss: The Senate just passed the American Rescue Plan—here's how it differs from the House version

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