Normally, the maximum amount of Earned Income Credit (EIC) increases each year. However, there are important changes that will provide IEC to more people. The new rules will help people with and without children.
The most significant changes to the IEC apply to eligible people without children.
The IEC changes for eligible people without children will be explained in this article.
Tax changes have widened the age range eligible for the IEC. Young and old people can apply for the credit in 2021 if they meet the earned income requirements.
In previous years, only people between the ages of 25 and 65 were eligible for the IEC, but the minimum and maximum ages have changed for 2021.
Generally, the minimum age for IEC is 19 for the 2021 tax year. However, the age is 18 for homeless or formerly fostered youth. A different age limit applies to eligible students (enrolled in a degree program at least half-time for five calendar months during the tax year). Students must be over 23 to qualify for the credit.
The upper age limit, which was 65, has been removed. Therefore, you are now eligible for the IEC if you are over 65 in the 2021 tax year.
The percentage of credit at which the EIC gradually moves in and out increased to 15.3% in 2021. The previous increase was 7.65%.
The AGI earned income threshold where the EIC begins to disappear has been increased to $11,610 (previously $8,880) for single people and $16,610 (previously $14,820) for those marrying jointly. The maximum IEC a childless person can claim has been increased from $543 to $1,502.
Two other changes apply to people with and without children who are eligible for the IEC.
One change was the investment income cap for EIC. In 2021, you can have up to $10,000 of investment income and claim the IEC. The investment income limit will be indexed to inflation in future years. Previously, people could not claim the IEC if their investment income was over $3,650.
A second change for the 2021 tax year is that you can choose to look back two years and use your 2019 earned income amount instead of your 2021 earned income for purposes of determining the credit. This is optional and can be used if 2019 income increases your credit amount. However, it is a good idea to mention this to your tax specialist.
If your tax advisor does not have a copy of your 2019 return, you must provide a copy when preparing your return.
The changes to the earned income credit for people with children will be explained in a later column.
David Zubler is a tax accountant and registered agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. David can be reached at (865) 363-3019 or by email at firstname.lastname@example.org