Section 9621 of the Act adds Code Sec. 32(n), which expands the universe of individuals eligible for the earned income tax credit (EITC) in 2021 while also increasing the amount of the credit available. Among other changes, the Act:
• nearly triples the amount of the EITC available for workers without qualifying children;
• expands the eligible age range for individuals who qualify for the EITC, and
• increases the amount of investment income an individual can have before being ineligible for the EITC.
Special Rules:
For 2021 for Individuals (Realtors, Brokers, and Real Estate Professionals) without Qualifying Children: Code Sec. 32(n) expands the eligibility and the amount of the EITC for taxpayers with no qualifying children (i.e., “childless EITC”) for 2021. In particular, under Code Sec. 32(n)(1), the applicable minimum age to claim the childless EITC is reduced from 25 to 19 (except for certain full-time students) and the upper age limit for the childless EITC is eliminated. The applicable minimum age in the case of a specified student (other than a qualified former foster youth or a qualified homeless youth) is 24, while the applicable minimum age in the case of a qualified former foster youth or a qualified homeless youth is 18. A “specified student” is, with respect to any tax year, an individual who is an eligible student (as defined in Code Sec. 25A(b)(3)) during at least five calendar months during the tax year. The term “qualified homeless youth” means, with respect to any tax year, an individual who (i) is certified by a local educational agency or a financial aid administrator during such tax year as being either an unaccompanied youth who is a homeless child or youth, or as unaccompanied, at risk of homelessness, and self-supporting, and (ii) provides consent for local educational agencies and financial aid administrators to disclose to the Treasury Secretary information related to the status of such individual as a qualified homeless youth. Code Sec. 32(n)(2) eliminates, for 2021, the age 65 cut-off for being eligible for the credit.
Code Sec. 32(n)(3) increases the childless EITC amount by (i) increasing the credit percentage and phase-out percentage from 7.65 to 15.3 percent, (ii) increasing the income at which the maximum credit amount is reached from $4,220 to $9,820, and (iii) increasing the income at which the phase out begins from $5,280 to $11,610 for non-joint filers. Under these parameters, the maximum EITC for 2021 for a childless individual is increased from $543 to $1,502.
Eligibility for Childless EITC Where Children Do Not Meet Identification Requirements: Section 9622 of the Act repeals Code Sec. 32(c)(1)(F), which prohibited an otherwise EITC-eligible taxpayer with qualifying children from claiming the childless EITC if he or she could not claim the EITC with respect to qualifying children due to failure to meet child identification requirements (including a valid SSN for qualifying children). Accordingly, for tax years beginning after December 31, 2020, individuals who do not claim the EITC with respect to qualifying children due to a failure to meet the identification requirements can now claim the childless EITC.
Credit Allowed in Case of Certain Separated Spouses: Section 9623 of the Act amends Code Sec. 32(d) to allow, for tax years beginning after December 31, 2020, a married but separated individual to be treated as not married for purposes of the EITC if a joint return is not filed. Thus, the EITC may be claimed by the individual on a separate return. This rule only applies if the taxpayer lives with a qualifying child for more than one-half of the tax year and either does not have the same principal place of abode as his or her spouse for the last six months of the year, or has a separation decree, instrument, or agreement and doesn’t live with his or her spouse by the end of the tax year. This change aligns the EITC eligibility requirements with present-day family law practice.
Modification of Disqualified Investment Income Test: Section 9624 of the Act amends Code Sec. 32(i) and increases the limitation on disqualified investment income for purposes of claiming the EITC from $3,650 (2020) to $10,000. This change is applicable for tax years beginning after December 31, 2020.
Application of EITC in Possessions of the United States: Section 9625 of the Act adds new Code Sec. 7530, which instructs the Treasury Department to make payments to the territories that relate to the cost of each territory’s EITC. In the case of Puerto Rico, which has an EITC, the payment is structured as a matching payment, wherein the Treasury Department will provide a match of up to three times the current cost of the Puerto Rico EITC, if Puerto Rico chooses to expand its current EITC. The other territories receive cost reimbursements of 75 percent of their EITC expenditures.
Use of Prior Year Income for Determining 2021 EITC: Section 9626 of the Act allows taxpayers in 2021, for purposes of computing the EITC, to substitute their 2019 earned income for their 2021 earned income, if 2021 earned income is less than 2019 earned income.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
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Palm Desert, CA 92260
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(Updated 03/18/2021 08:05)