The American Rescue Plan Act made sweeping changes to the Earned Income Tax Credit, making the credit available to more taxpayers.
Changes applicable to the 2021 tax year only are as follows:
- Increase the availability of the EITC to returns without dependents by increasing the earned income amount from $543 (2020) to $1,500 (2021) and increasing the phase-out percentage and the phase-out amount.
- Decrease the minimum age from 25 to 19 with the exclusion of certain full-time students up to age 24. A taxpayer who was a foster child (age 14 or older) or was homeless at any time during youth will be allowed to claim the credit at age 18.
- Eliminate the upper age limit of 65, making the EITC not subject to an age limit.
- Allow the taxpayer the option to use their 2019 earned income to calculate the credit if it's higher than their 2021 earned income.
Additional changes applicable beyond 2021:
- Increase the maximum investment income allowed to $10,000. In addition, this $10,000 will be adjusted in future years for inflation. (Formerly, any taxpayer with investment income of $3,650 was excluded from EITC. This new provision will benefit individuals that receive income from sources such as rental properties and Schedule K-1.)
- Allow married but separated taxpayers to be treated as not married for the purpose of EITC with qualifying stipulations:
- Married individuals cannot file a joint return.
- Must not have the same principal residence as the spouse for at least six (6) months of the applicable year.
- Lived with a qualifying child for more than one-half the tax year.
- Allow taxpayers to qualify for EITC under the single taxpayer rules if their children do not have SSNs that are valid for employment.
Additional Information:
IRS: Earned Income Tax Credit Assistant - EITC Calculator
IRS: Topic 601 Earned Income Tax Credit
IRS: Earned Income Credit - Publication 596
Earned Income Credit (EITC) Income Limits and Maximum Credit Amounts