The IRS has issued updated inflation adjusted tables for the 2021 Child Tax Credit (CTC) and Earned Income Credit (EITC) to reflect statutory amendments made by the American Rescue Plan Act (ARPA) of 2021. Updates are shown below.
Earned Income Credit (EIC)
The EIC was expanded in 2021 to provide greater coverage for childless workers by boosting the maximum credit claimable in tax returns to $1,502 from $543 for workers with no children. The stimulus plan also raises the income phaseout thresholds for childless earners to $11,610, meaning a higher amount of the credit will be received before it starts to phase out (reduce) above this lower threshold. Limits for families with children were already inflation adjusted by the IRS as shown in the table below. The benefit would be realized when taxpayers file their 2021 returns in 2022. Start e-Filing Your Taxes Here For Free
The maximum investment income threshold has also been raised to $10,000, which will allow many more Americans who don’t have wage income to qualify (was $3,650 before). This is a permanent provision that will be adjusted for inflation, versus the increased income limits which are only for 2021.
|Income Qualification Item||No Children||With 1 Child||With 2 Children||With 3+ Children|
|1. Max. 2021 Earned Income Tax Credit Amount||$1,502||$3,618||$5,980||$6,728|
|2. Earned Income Base Amount required to get maximum credit||$9,820||$10,640||$14,950||$14,950|
|3. Phaseout Threshold Amount Begins (for Single, SS, or HoH)||$11,610||$19,520||$19,520||$19,520|
|4. Income (AGI) Maximum When Credit Eligibility Ends (for Single, SS, or HoH)||$21,430||$42,158||$47,915||$51,464|
|5. Phaseout Threshold Amount Begins (for Married Filing Jointly)||$17,560||$25,470||$25,470||$25,470|
|6. Income (AGI) Maximum When Credit Eligibility Ends (for Married Filing Jointly)||$27,380||$48,108||$53,865||$57,414|
2021 Child Tax Credit
The refundable portion of the Child Tax Credit (CTC) was increased to $3,600 for each qualifying child under 6 as of the end of 2021. For qualifying children over the age of 6 but not 18 by the end of the 2021, the credit was increased to $3,000. This is a $1,000 or nearly 50% increase of the credit from 2020 levels.
At this stage the eligibility and income expansion to both these credits is only valid for 2021, unless extended again by Congress. Further, the increased amounts apply to single or married taxpayers with a primary residence in the United States or was a bona fide resident of Puerto Rico in 2021.
IRS source – Rev. Proc. 2020-45