ARPA-adjusted 2021 individual credit amounts set

By Sally P. Schreiber, J.D.

Editor: Paul Bonner

The IRS issued adjusted amounts for the child tax credit, the earned income tax credit (EITC), and the premium tax credit (PTC) for 2021, to reflect changes enacted in the American Rescue Plan Act (ARPA), P.L. 117-2 (Rev. Proc. 2021-23).

Child tax credit

Only for tax years beginning in 2021, Section 9611 of ARPA increases the refundable portion of the child tax credit to $3,000 for qualifying children who have attained age 6 but not 18 by the end of the 2021 tax year (the latter age an increase from 17), and $3,600 for qualifying children who have not attained age 6. The partial refundability provisions under Sec. 24(d) do not apply to this temporary provision, making the credit fully refundable (for more, see Adkins and Henderson, "ARPA Expands Tax Credits for Families," also in this issue).

EITC

In another change that applies only to tax years beginning in 2021, Section 9621 of ARPA temporarily modifies the EITC with, for example, special rules for eligible individuals with no qualifying children and higher applicable phaseout amounts. The revised numbers appear in Section 4.01 of the revenue procedure.

In a permanent provision, for tax years beginning in or after 2021, Section 9624 of ARPA modifies Sec. 32(i) to provide that the EITC is not available to taxpayers whose aggregate disqualified investment income exceeds $10,000, an increase from $3,650. The new, larger amount will be adjusted for inflation for tax years beginning after Dec. 31, 2021.

PTC

For the 2021 and 2022 tax years, Section 9661 of ARPA amends the applicable percentage table in Sec. 36B(b)(3)(A) to provide temporary percentages that are listed in the revenue procedure. Taxpayers use the applicable percentages to determine the amount of the PTC they may claim for the tax year.

ARPA does not amend the required contribution percentage by which a taxpayer determines whether the taxpayer and family members are eligible for employer-sponsored minimum essential coverage. Therefore, the required contribution percentage of 9.83% for 2021 is unchanged.

The revenue procedure modifies and supersedes Sections 3.05 and 3.07 of Rev. Proc. 2020-45 and Section 2.01 of Rev. Proc. 2020-36.

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