IRS ups tax credit amounts for inflation after American Rescue Plan

The Internal Revenue Service is increasing the inflation-adjusted amounts of the Child Tax Credit and Earned Income Tax Credit for this year in accordance with the latest coronavirus relief package.

The IRS released Revenue Procedure 2021-23 on Monday, which modifies and supersedes parts of the 2021 inflation adjustments in last year’s Rev. Proc. 2020-45, to reflect some of the changes in the American Rescue Plan Act of 2021, which Congress passed last month. The new IRS guidance not only modifies the inflation-adjusted amounts for the CTC and the EITC, but also the applicable percentage table for Premium Tax Credits under the Affordable Care Act.

The COVID-19 relief package temporarily expands the Child Tax Credit from $2,000 per child to $3,600 for children ages five and under, and $3,000 for children between six and 17 years old for the rest of the year in an effort to reduce child and family poverty. Democrats hope to make it a permanent feature of the Tax Code. The American Rescue Plan Act also includes provisions to make the EITC available to more workers who aren’t raising children and boosting the maximum amount from $540 to about $1,500, and lifting the income cap to qualify for the EITC from $16,000 to about $21,000. The age range also expanded to adults aged 19-24, except for students, and ages 65 and older. The law also expands Obamacare marketplace premium subsidies for health insurance coverage to those with income up to 400 percent of the federal poverty level.

There was one caveat in the new revenue procedure with regard to investment income in terms of qualifying for the EITC. “For taxable years beginning in 2021, the EIC is not allowed if the aggregate amount of disqualified investment income exceeds $10,000,” said the IRS.

Source: https://www.accountingtoday.com/