Normally, the maximum amount of the earned income credit (EIC) increases each year. However, there are some important changes that will provide the IEC to more people. The new rules will help people with and without children.
The most significant changes to the IEC apply to people without eligible children.
The EIC changes for eligible people without children will be explained in this article.
The tax changes have widened the age group eligible for the EIC. Young people and the elderly can apply for the credit in 2021 if they meet the working income conditions.
In previous years, only people aged 25 to 65 were eligible for the EIC, but the minimum and maximum ages have changed for 2021.
Typically, the minimum age for the EIC is 19 for the 2021 tax year. However, the age is 18 for skilled homeless people or former youth in foster care. A different age limit applies to eligible students (enrolled in a degree program at least part-time for five calendar months in the tax year). Students must be over 23 to be eligible 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 that the EIC is gradually entering and exiting rose to 15.3% in 2021. The previous increase was 7.65%.
The AGI online earned income threshold where the IEC begins to disappear has been increased to $ 11,610 (formerly $ 8,880) for singles and to $ 16,610 (formerly $ 14,820) for those who have married jointly . The maximum CIE that a person without children can claim has been increased from $ 543 to $ 1,502.
Two other changes apply to people with and without children eligible for the IEC.
One change was the investment income limit for EIC. In 2021, you can have up to $ 10,000 in investment income and apply for the EIC. The investment income limit will be indexed to inflation over the coming years. Previously, people couldn’t claim the EIC if their investment income was over $ 3,650.
A second change for the 2021 tax year is that you can choose to go back two years and use your 2019 earned income amount instead of 2021 earned income for the purposes of determining the credit. This is optional and can be used if the 2019 earnings increase your credit amount. However, it is a good idea to talk to your tax professional.
If your tax professional does not have a copy of your 2019 return, you must provide a copy when your return is prepared.
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. He has over 25 years of tax experience. He is the author of five tax books and is the founder and president of Your Tax Care. The company offers business and tax training to the public on its website, YourTaxCare.com. David has been on national television, and recordings of David’s daily radio show on tax advice are also available. David can be reached at (865) 363-3019 or contacted by email at firstname.lastname@example.org