SECTION 2. BACKGROUND

.01 Child Tax Credit and Credit for Other Dependents .

(1) Child tax credit . Under § 24(a), a taxpayer may claim a credit against the taxpayer’s Federal income tax liability (as imposed by chapter 1 of subtitle A of the Code) for the taxable year with respect to each of the taxpayer’s qualifying children for whom the taxpayer is allowed a deduction under § 151 of the Code. In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026, no child tax credit is allowed for a qualifying child unless the social security number (SSN) of the child, which must be valid for employment, is provided on the return. See § 24(h)(7). If the taxpayer’s child was a U.S. citizen when the child received the SSN, the SSN is valid for employment.

(2) Credit for other dependents . For the taxable years described in section 2.01(1) of this revenue procedure, a $500 credit (credit for other dependents) may be available for a dependent of the taxpayer who is not a qualifying child or who is a qualifying child but does not have an SSN valid for employment. See § 24(h)(4). The credit for other dependents is not addressed by this revenue procedure because the credit is nonrefundable, and therefore is not applicable to individuals described in section 4.02 or 5.02 of this revenue procedure.

(3) Nonresident aliens . Only nonresident aliens who are U.S. nationals; residents of Canada, Mexico, or South Korea; or students and business apprentices from India who qualify for benefits under Article 21(2) of the income tax treaty with India may claim the child tax credit or credit for other dependents.

.02 American Rescue Plan Changes to the Child Tax Credit . Section 9611(a) and (b)(1) of the American Rescue Plan Act of 2021 (American Rescue Plan), Public Law 117-2, 135 Stat. 4, 144-148 (March 11, 2021), added §§ 24(i) and 7527A to the Code. The American Rescue Plan amended the provisions under § 24 that address the child tax credit for qualifying children but did not amend the provisions under § 24 that address the credit for other dependents.

(1) Special child tax credit rules under § 24 . With regard to any taxable year beginning after December 31, 2020, and before January 1, 2022 (2021 taxable year), § 24(i) amends the child tax credit rules set forth in § 24 to provide the following:

(a) The definition of a qualifying child has been expanded to include a child who has not attained the age of 18 as of the end of the 2021 taxable year (2021 CTC qualifying child). See § 24(i)(2)(A).

(b) The child tax credit for 2021 CTC qualifying children is fully refundable for a taxpayer if the taxpayer (or the spouse of the taxpayer filing a joint return) has a principal place of abode in the United States (determined as provided in § 32 of the Code) for more than one-half of taxable year 2021 (U.S. principal place of abode status). Full refundability means that taxpayers can benefit from the maximum credit even if they do not have earned income or do not owe any Federal income tax. See § 24(i)(1).

(c) Taxpayers claiming the child tax credit for the 2021 taxable year will receive up to $3,000 for each 2021 CTC qualifying child who is between the ages of 6 and 17 as of the end of the 2021 taxable year, and $3,600 for each 2021 CTC qualifying child who is under the age of 6 as of the end of the 2021 taxable year. See § 24(i)(2) and (3).

(2) Advance payment of the child tax credit under § 7527A .

(a) Establishment of advance child tax credit payment program . Section 7527A(a) requires the Secretary of the Treasury or her delegate (Secretary) to establish a program for making periodic advance child tax credit payments to taxpayers the total of which, during any calendar year, equals the “annual advance amount” (as defined in § 7527A(b)(1)) determined with respect to that taxpayer for that cal

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endar year. These advance child tax credit payments must be made no earlier than July 1, 2021, and no later than December 31, 2021, and generally must be made in equal amounts. See §§ 7527A(a), (b)(3), and (f).

(b) Definition of annual advance amount . In general, § 7527A(b)(1) defines the term “annual advance amount” to mean, with respect to any taxpayer for any calendar year, the amount (if any) that the Secretary estimates as being equal to 50 percent of the refundable child tax credit amount that would be treated as allowed by reason of § 24(i)(1) for the taxpayer’s taxable year beginning in that calendar year if (i) the U.S. principal place of abode status is determined with respect to the “reference taxable year” (as defined in § 7527A(b)(2)); (ii) the taxpayer’s modified adjusted gross income for that taxable year is equal to the taxpayer’s modified adjusted gross income for the reference taxable year; (iii) the only children of the taxpayer for that taxable year are qualifying children properly claimed on the taxpayer’s return of tax for the reference taxable year; and (iv) the ages of those children (and the status of those children as 2020 CTC qualifying children) are determined for that taxable year by taking into account the passage of time since the reference taxable year.

(c) Reference taxable year . In general, the term “reference taxable year” means, with respect to any taxpayer for any calendar year, the taxpayer’s taxable year beginning in the preceding calendar year (that is, the taxpayer’s 2020 taxable year) or, in the case of taxpayer who did not file a Federal income tax return for that taxable year, the taxpayer’s taxable year beginning in the second preceding calendar year (that is, the taxpayer’s 2019 taxable year).

(d) Authority to issue guidance . Section 7527A(g) provides, in relevant part, that the Secretary shall issue such regulations or other guidance as the Secretary determines to be necessary or appropriate to carry out the purposes of § 7527A.

.03 2020 Recovery Rebate Credit and First-Round Economic Impact Payments .

(1) 2020 recovery rebate credit . Section 2201(a) of the Coronavirus Aid, Relief, and Economic Security Act (or CARES

Act), Public Law 116-136, 134 Stat. 281, 335-337 (March 27, 2020) added § 6428 to the Code. Section 6428(a) provides an eligible individual (as defined in § 6428(d)) a refundable tax credit against the eligible individual’s Federal income tax liability (as imposed by subtitle A of the Code) for the eligible individual’s first taxable year beginning in 2020 (2020 recovery rebate credit).

(a) Definition of eligible individual . Section 6428(d) defines the term “eligible individual” for purposes of § 6428 to mean any individual other than (i) a nonresident alien individual, (ii) an individual who can be claimed as a dependent for a deduction under § 151 for the taxable year, or (iii) an estate or trust. To receive a 2020 recovery rebate credit, § 6428(g) requires that an eligible individual have an SSN valid for employment or file a joint return with an eligible individual who has an SSN valid for employment.

(b) Amount of 2020 recovery rebate credit . Section 6428(a) provides that the amount of the 2020 recovery rebate credit equals the sum of (i) $1,200 per eligible individual ($2,400 in the case of two eligible individuals filing a joint return) and (ii) an amount equal to the product of $500 multiplied by the number of 2020 CTC qualifying children of the eligible individual. Section 6428(g)(1)(C) and (g)(3) does not take into account a 2020 CTC qualifying child who does not have an SSN valid for employment or an adoption taxpayer identification number issued by the IRS (ATIN). Section 6428(g) reduces the $2,400 amount for joint filers to $1,200 if one spouse does not have an SSN valid for employment and neither spouse was a member of the Armed Forces of the United States at any time during the taxable year. Section 6428(c) provides phaseouts of the credit amount based on an eligible individual’s AGI. Section 6428(e) further reduces the credit amount by the aggregate refunds allowed to the eligible individual as an advance refund in 2020 (first-round economic impact payments).

(2) First-round economic impact pay- ments . Section 6428(f) addresses the payment of advanced refunds and credits during calendar year 2020. The IRS has disbursed the first-round economic impact payments. See § 6428(f)(3)(A).

.04 Additional 2020 Recovery Rebate Credit and Second-Round Economic Im- pact Payments .

(1) Additional 2020 recovery rebate credit . Section 272(a) of the COVID-related Tax Relief Act of 2020, enacted in Division N of Title II of the Consolidated Appropriations Act, 2021, Public Law 116-260, 134 Stat. 1182, 1965-1971 (December 27, 2020), added § 6428A to the Code. Section 6428A(a) provides an eligible individual, in addition to the refundable tax credit allowed under § 6428(a), a refundable tax credit against the eligible individual’s Federal income tax liability (as imposed by subtitle A of the Code) for the eligible individual’s first taxable year beginning in 2020 (additional 2020 recovery rebate credit).

(a) Definition of eligible individual . Section 6428A(d) defines the term “eligible individual” for purposes of § 6428A to mean any individual other than (i) a nonresident alien individual, (ii) an individual who can be claimed as a dependent for a deduction under § 151 for the taxable year, or (iii) an estate or trust. To receive an additional 2020 recovery rebate credit, § 6428A(g) requires that an eligible individual have an SSN valid for employment or file a joint return with an eligible individual who has an SSN valid for employment.

(b) Amount of additional 2020 recovery rebate credit . Section 6428A(a) provides that the amount of the additional 2020 recovery rebate credit equals the sum of (i) $600 per eligible individual ($1,200 in the case of two eligible individuals filing a joint return) and (ii) an amount equal to the product of $600 multiplied by the number of 2020 CTC qualifying children of the eligible individual. Section 6428A(g) (3) and (4) does not take into account a 2020 CTC qualifying child who does not have an SSN valid for employment or an ATIN. Section 6428A(g) reduces the $1,200 amount for joint filers to $600 if one spouse does not have an SSN valid for employment and neither spouse was a member of the Armed Forces of the United States at any time during the taxable year. Section 6428A(c) provides phaseouts of the credit amount based on an eligible individual’s AGI. Section 6428A(e) further reduces the credit amount by the aggregate refunds allowed to the eligible individual as an advance refund in Decem

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ber 2020 and January 2021 (second-round economic impact payments).

(2) Second-round economic impact payments . Section 6428A(f) addresses the payment of advanced refunds and credits during calendar year 2020. All second-round economic impact payments have been disbursed. See § 6428A(f)(3)(A).

.05 2021 Recovery Rebate Credit and Third-Round Economic Impact Payments .

(1) 2021 recovery rebate credit . Section 9601(a) of the American Rescue Plan added § 6428B to the Code. Section 6428B(a) provides an eligible individual a refundable tax credit against the eligible individual’s Federal income tax liability (as imposed by subtitle A of the Code) for the eligible individual’s first taxable year beginning in 2021 (2021 recovery rebate credit).

(a) Definition of eligible individual . Section 6428B(c) defines the term “eligible individual” for purposes of § 6428B to mean any individual other than (i) a nonresident alien individual, (ii) an individual who is a dependent of another taxpayer (as defined in § 152) for the taxable year, or (iii) an estate or trust.

(b) Amount of 2021 recovery rebate credit . Section 6428B(a) provides that the amount of the 2021 recovery rebate credit equals the sum of (i) $1,400 per eligible individual ($2,800 in the case of a joint return) and (ii) an amount equal to the product of $1,400 multiplied by the number of the eligible individual’s dependents (within the meaning of § 152). If an eligible individual does not have an SSN, or if two eligible individuals who do not have an SSN file a joint return, § 6428B(e)(2) does not allow the $1,400 for the eligible individual or $2,800 for the joint return, but will allow an amount for dependents (as defined in § 152). Section 6428B(e)(2) reduces the $2,800 amount for a joint return to $1,400 if one spouse has an SSN, one spouse does not have an SSN, and neither spouse was a member of the Armed Forces of the United States at any time during the taxable year. Only a dependent with an SSN or an ATIN is counted for purposes of determining the amount of the 2021 recovery rebate credit. Section 6428B(e)(2) (C) and (D). For purposes of qualifying for the 2021 recovery rebate credit, any type of SSN is sufficient. See § 6428B(e)(2)(D) (i). Section 6428B(d) provides phaseouts

of the credit amount based on an eligible individual’s AGI.

(2) Third-round economic impact pay- ments . Section 6428B(g) provides eligible individuals with advance refund payments of the 2021 recovery rebate credit (thirdround economic impact payments). All third-round economic impact payments must be disbursed to eligible individuals before January 1, 2022. See § 6428B(g) (3).

(a) Calculation of payment amount . If available to the Secretary as of the eligibility and payment determination date for an eligible individual, the amount of the eligible individual’s third-round economic impact payment is determined based on the eligible individual’s 2020 Federal income tax return. See § 6428B(g)(5)(A). If an eligible individual’s 2020 Federal income tax return has not been processed as of the eligibility and payment determination date for the eligible individual, the eligible individual’s 2019 Federal income tax return will be used to determine the amount of the eligible individual’s thirdround economic impact payment. See § 6428B(g)(1), (5)(A). (b) Plus-up payments . If an eligible individual who receives the third-round economic impact payment determined before the IRS processes the eligible individual’s 2020 Federal income tax return is entitled to a larger payment based on the eligible individual’s 2020 Federal income tax return, the eligible individual will receive an additional “plus-up” payment making up the difference when the eligible individual’s 2020 Federal income tax return is processed. See § 6428B(g)(5)(B).