For some households, the credit may reduce their federal income tax bill, but other families could opt to receive direct monthly payments of up to $300 per child.
Under current law, most taxpayers could claim up to $2,000 per child. In a significant change, the bill would increase the tax break to $3,000 for every child age 6 to 17 and $3,600 for every child under the age of 6.
Click here to check out our stimulus check calculator to see how much you could be eligible for under this plan.
The enhanced portion of the credit will be available for single parents with annual incomes up to $75,000 and joint filers making up to $150,000 a year.
For example, in 2021, a family with two parents earning less than $150,000 and three children under the age of 6 could receive $10,800 on top of $1,400 in stimulus payments for each eligible adult and child, totaling $17,800.
"It'll help with household finances. Maybe even with medical costs, and just with entertainment. Everybody's been in cooped up the house," John Barbour, a Philadelphia resident, told 6abc.
In addition, the tax credit will be refundable, which means more low-income families can take advantage of it, even if their tax bill is $0. Until now, it has only been partially refundable -- leaving 23 million children unable to get the full credit because their families' incomes are too low.
Plus, households could receive the half the credit on a monthly or periodic basis, from July through December, rather than as a lump sum once a year. This is aimed at making it easier for them to cover their expenses. The other half would be claimed on their 2021 tax returns.
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Families could receive half their total credit as a periodic payment starting in July and running through the rest of the year, according to the legislation. They could then claim the remaining half on their 2021 tax returns.
The credit is only temporary, expected to last for one year based on the passage of the American Rescue Plan, but Democrats have made clear their intention of making it permanent.
Some experts say the new tax credit is a smart way to lift children out of poverty and boost the economy.
"Making the child tax credit fully refundable is an incredibly smart and targeted way to help those most in need," said Kathy Fisher, a policy director with the Coalition Against Hunger.
Others warn that borrowing so much money could cause long-term economic problems.
"We need to be careful of printing up too much money because it's going be our children and grandchildren who are going to see higher taxes," said David Fiorenza, an associate professor of economics at Villanova University.
The Associated Press and CNN Wire contributed to this report.