2021 child tax credit, EITC, and premium tax credit limits updated

The IRS on Monday 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 of 2021, P.L. 117-2 (Rev. Proc. 2021-23).

Only for tax years beginning in 2021, Section 9611 of the American Rescue Plan Act 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, 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.

In another change that only applies for tax years beginning in 2021, Section 9621 of the American Rescue Plan Act temporarily modifies the EITC with special rules, including, for example, special rules for eligible individuals with no qualifying children and higher applicable phaseout amounts. Tables with 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 the American Rescue Plan Act modifies Sec. 32(i) to provide that the EITC is not available for taxpayers whose aggregate amount of 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.

For the 2021 and 2022 tax years, Section 9661 of the American Rescue Plan Act 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 in the table to determine the amount of the PTC they may claim for the tax year.

Section 9661 does not amend the required contribution percentage that a taxpayer uses to determine whether the taxpayer and members of the taxpayer’s family 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 and applies to tax years beginning in 2021.

— Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.