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:
- Increasing 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.
- Decreasing the minimum age from 25 to 19 with the exclusion of certain full-time students up to age 24. A taxpayer who is a former foster child or was homeless will be allowed to claim the credit at age 18.
- Eliminating the upper age limit of 65, making the EITC no longer subject to an age limit.
- Allowing the taxpayer the option to use either their 2019 earned income or their 2021 earned income, whichever is greater to calculate the credit.
Additional changes applicable beyond 2021:
- Increasing 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 (Form 1120-S).)
- Allowing 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.
- Allowing taxpayers to qualify for EITC under the single taxpayer rules if their children do not have SSNs that are valid for employment.