What 'historic' expansion of child tax credit in COVID relief bill could mean for you

Included in the 628 pages of the American Rescue Plan is a change that experts say will prove to be a "historic" step in reducing child poverty.

The proposal calls for a one-year expansion in both the value and scope of the child tax credit to American families, something some studies estimate could lift millions of children out of poverty.

The measure would increase the amount of the child tax credit to $3,600 per child under 6 and $3,000 per child between the ages of 6 and 18. That is up from a maximum benefit of $2,000 under the current policy. It also expands the ages of children eligible, which was previously capped at age 17.

The benefits begin to phase out for heads of household making more than $112,500 annually or couples earning more than $150,000 a year.

One notable change from the existing tax credit is that it would benefit low-income families by making the tax refundable, meaning that even families without income will receive it. Some experts have called the current policy an “upside-down benefit” because the greatest benefit does not go toward those with the greatest need.

“The very lowest income children get nothing, moderate-income children have their benefits limited and then middle-income children get $2,000 per child,” said Elaine Maag, principal research associate at the Urban Institute, a Washington, D.C.-based think tank focused on social and economic policy, of the current tax credit.

Provided the COVID relief bill is passed by the House and signed by the president, the new program will be administered by the Internal Revenue Service (IRS), which will disburse the credit throughout the year, providing eligible families a payment for as much as $300 per month. The payments are expected to begin going out in July.

The fact that low- and no-income earners will be able to receive the credit is expected to provide a major boost to families who lost income during the COVID-19 pandemic. Lawmakers who pitched the addition to the COVID-19 relief bill had hoped it could help alleviate the economic stress.

“The pandemic is driving families deeper and deeper into poverty, and it’s devastating,” Chairman of the House Ways and Means Committee Richard Neal, D-Mass., said in a statement when the proposal was announced. “We are making the Child Tax Credit more generous, more accessible, and by paying it out monthly, this money is going to be the difference in a roof over someone’s head or food on their table."

Some experts say the legislation has been “a long time coming,” as there have been Democratic proposals to provide more assistance to families for years. But even for Republicans, the measure did not prove to be a sticking point in partisan negotiations over the bill -- which still did not get a single Republican vote in the House or Senate.

The credit is only temporary, expected to last for one year based on the passage of the American Rescue Plan, and at a single-year cost of $100 billion. But Democrats have made clear their intention of making it permanent.

“This bill takes the first step, with a one-year expansion, and even that is extremely historic. It would lift more than 4 million children above the poverty line, cutting the number of children in poverty by more than 40%. If you look back historically, the child tax credit and the earned income tax credit have lifted about 5.5 million children out of poverty in 2018, in one fell swoop,” said Kris Cox, deputy director of federal tax policy at the Center on Budget and Policy Priorities, a nonpartisan research and policy institute.

The fact that this expansion is not tied to income also represents a philosophical change in social policy and puts America on track with other wealthy nations, many of which have child allowances or similar programs.

Zach Tilly, a policy associate with the Children's Defense Fund, said the "landmark" expansion will "triple the poverty-fighting power" of the already helpful child tax credit.

"In the United States for a long time, we've had a sort of stubbornly high, persistently high child poverty rate, especially compared with the rest of the world," Tilly said. "And I think that a lot of that persistently high child poverty rate has to do with just a long-standing lack of federal investment in children, particularly in poor children, and particularly in children of color, Black children especially."

Although the expansion of the child tax credit is universal, it will have great benefits on Black and Latino Americans who face disproportionate levels of poverty.

“Due to historic barriers to opportunity, families with children of color have been disproportionately left out of receiving the full benefit and addressing racial equity is certainly an outcome of this legislation,” Cox said.

Some Republican lawmakers worry that taking away the income requirement will discourage families from working. Sens. Marco Rubio, R-Fla. and Mike Lee, R-Utah released a statement saying they approved of "recent proposals to increase tax relief for working families" but want them tied to work.

"... We do not support turning the Child Tax Credit into what has been called a ‘child allowance,’ paid out as a universal basic income to all parents. That is not tax relief for working parents; it is welfare assistance," the statement said. "An essential part of being pro-family is being pro-work. Congress should expand the Child Tax Credit without undercutting the responsibility of parents to work to provide for their families.”

Robert Rector, senior research fellow at the Heritage Foundation, a conservative public policy think tank, argues that the expansion of the child tax credit is a partisan effort to reverse welfare reform.

"At the very least, it just sending a message that says you can rely on other people to support you. We don't have any expectations, you need to do anything to support yourself, and even poor people don't really agree with that," Rector said.

Others worry that the IRS may be unequipped for a project of this size. Although the bill allocates funding to the IRS in order to provide for increased work associated with the change, there is concern about hiccups in the implementation, especially in the middle of tax season, a historically busy time for the agency.

“I do worry about the IRS becoming overwhelmed,” Maag of the Urban Institute said. “There was funding in the legislation to try to help solve this. They also have strong leadership that seems to want to make this program work and leadership matters, especially when you're trying to do new things.”

The IRS did deploy two rounds of direct payments in 2020, and Maag said that those rounds of benefits along with information it collects as Americans file taxes have improved data the agency has to deploy the expanded credit despite decades of budget cuts, which makes programs like this more challenging.

Once families do receive the payments, experts speculate that the program -- which puts money into people’s pockets -- will be popular and, therefore, more likely to remain in place.

“I think it's difficult to take something away that's popular. In this case, they are trying to deliver this benefit throughout the year in advance, which means they're going to send potentially a monthly check to every parent that qualifies ... and I would think that would make it difficult to take it away,” Maag said.

ABC News’ Benjamin Siegel contributed to this report.