Up to 20 million low-income Americans may be seeing larger tax refunds this year thanks to the expansion of the Child Tax Credit (CTC) and Earned Income Credit (EITC) under the American Rescue Plan Act (ARPA) of 2021.
While the CTC is designed to help families and eligible dependents, the EITC has been significantly expanded for childless adults with earned income. Both these expansions are for the 2021 tax year only. So even if you don’t file a return normally, it may be worth getting one in to get this refundable credit.
Lower-income workers without kids can receive a credit worth up to $1,502 for the 2021 tax year (filed in 2022). This is nearly triple what the credit was worth in 2020. You can see this in the updated IRS tables below, which should be reflected when e-filing your return.
However as seems to the trend, IRS refund processing delays ensue with any expansion or adjustment to a large scale tax credit. More on how this impacts tax filers below.
2021 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.
Prior years’ age limits for the EITC were also scrapped, meaning that any worker over 19 who meets income guidelines would qualify for the credit. Previously, only workers ages 25 to 64 could claim it.
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.
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.
You can see more around the advance CTC payments here.
Issues with Tax Returns Processing Due to Incorrect or Mismatches with IRS Records
While the expansion and advance payment of the EIC and CTC have boosted refunds, it has also caused a lot of issues and delays with processing tax returns.
This is mainly due to filers incorrectly claiming these credits by not reporting the right amounts (i.e. not adjusted for prior payments), not accounting for increased income in 2021 or claiming it for ineligible dependents.
Tax filers can see this via code 570 on their tax transcript, and will need to wait for IRS to make adjustments after further reviews. Once the IRS makes adjustments, refund will generally be released and you will see messages like the ones below in your IRS2Go or WMR.
A notice will be sent to tax payers to outline changes, which they will have the chance to appeal. You can see more in this recent tax video.
Will CTC and EITC expansions be extended in 2022 and 2023?
At this stage the eligibility and income expansion to both these credits is only valid for 2021, unless extended again by Congress.
Look Back Option For 2021 EITC and CTC (use 2019 income)
The ARPA act also included an overlooked provision that was designed to help jobless workers via a “lookback” provision that allows a tax payer to use their 2019 earned income instead of their 2021 income. They can use their 2019 income level to qualify and calculate the Earned Income Credit (EIC) or Additional Child Tax Credit (ACTC).
In many cases, those who made less money during the years of 2020 and 2021 (which was quite common during the pandemic) could use their higher 2019 income to qualify and get a decent bump in the EITC in particular. Note that this was was only for 2020 and 2021 tax filing season.