Article Date:
April 2021


Word Count:
1799

 

 

ARPA Liberalizes the Earned Income Tax Credit Rules


The earned income tax credit (EITC) has been around for years. But for some folks, it’s never been worth as much as it will be for 2021.

 

That’s thanks to liberalizations included in the new American Rescue Plan Act (ARPA). Some of the favorable changes are only for the 2021 tax year. Others are permanent.

 

Here’s what you need to know, starting with some necessary background information.

 

EITC Basics

 

The EITC is targeted at low-income and moderate-income individual taxpayers. Perhaps most important, it’s a refundable credit.

 

That means you can collect it even if you don’t owe any federal income tax. In other words, it’s free money.1

 

If you’re an eligible individual, your tentative EITC (the maximum you can hope for) equals the applicable credit percentage of your earned income for the year.

 

The tentative EITC is then reduced by the phaseout amount, if applicable, to arrive at your allowable EITC.

 

Eligible Individual Defined

 

In general, you are an eligible individual if you have at least one qualifying child for the tax year in question.

 

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