2021 Tax Law Changes Part 2: earned income tax credit - YouTube

the first one we want to talk about  is the earned income tax credit

the first big change that's occurred with the  earned income tax credit is that historically  

you cannot collect the earned income tax  credit if you have a certain dollar amount  

of investment income last year that amount was  three thousand six hundred and fifty dollars  

i and this amount gets increased every year  because it's indexed and it'll go up based on  

changes to the consumer price index starting in  2021 this investment income limitation has been  

increased to ten thousand dollars and this is a  permanent change to the earned income tax credit  

and starting in future years starting in 2022  that ten thousand dollar amount will be adjusted  

upwards uh based on changes in in the consumer  price index this is going to be a big change for  

some taxpayers that previously were unable  to collect earned income tax credit because  

maybe they had something like a capital gain that  exceeded the 36.50 amount or they could have had  

rental income or maybe they had some income coming  from an s corp and those those were the items that  

kept them from getting the earned income tax  credit so now the amount is much larger 10 000  

so this should open up uh the credit to  some taxpayers that previously didn't get it  

the next thing is it's also historically one of  the disqualifiers for the earned income tax credit  

was being married and filing separately a married  filing separate tax return rendered that taxpayer  

ineligible for the earned income tax credit  uh they could if you were separated from your  

taxpayer if you had a qualifying child and you  didn't live with your spouse you have the ability  

to file as head of household and you would  be able to claim the earned income tax credit  

but married filing separate was an automatic  disqualifier going forward there are under certain  

limited situations there will be times when a  married but separated taxpayer will now be able  

to claim the earned income tax credit you can't  live with their they can't live with their spouse  

for the last six months of the year uh they or  they would have to have a separation agreement  

and they have to have a qualifying child  that they lived with for some point  

for some time during the year for six months they  don't have to claim the child on their tax return  

but they just simply have to have a qualifying  child that they lived with for six months  

at some point during the year it doesn't have to  be the last six months just be any time during  

the year there's going to be a new question that  you're going to have to deal with on the earned  

income tax credit and that's going to be with this  whenever you have a married filing separate return  

and you're going to have a box that you'll be  able to check off if they meet this credit as  

you can see down here in the right corner of  the on this on the side that they're on the 2021  

eic uh questionnaire that there is a box that  they'll be able to check and once they check that  

then that will allow them to collect uh EITC if  they're otherwise eligible the next change which  

i think is a pretty big change for 2021 is the age  requirements historically if you are a taxpayer  

and you do not have a qualifying child you have  to meet certain age requirements you have to be  

at least age 25 and you have to be under age 65.  this was designed so that you know folks you know  

young folks with with with no children uh  couldn't claim EITC and older folks start  

going into retirement years with certain you know  maybe part-time jobs also would no longer be able  

to collect uh earned income tax credit well this  has changed uh in 2021 if you're a younger person  

and you're single you the age requirements with  if you're a taxpayer with no uh qualifying child  

uh single or married uh but if you're a younger  i mean if you're you're a taxpayer with no  

qualifying child and your age is 24 you you know  and you're a student that's what that's that's  

the requirement but if you're not a student you  can be 18 and if claim earned income tax credit  

if at any time after you turned 14 you were either  in foster care or if any time in your life you've  

been homeless then you'll be eligible for EITC  at 18. if you're not a student not homeless or  

ever been in foster care the age requirement's  now 19. so younger folks will be able to collect  

earned income tax credit another big dramatic  change is the age 65 requirements no longer exist  

there is no upper age limit you simply just  older folks with earned income you know older  

folks that maybe are retired and collecting  some um you know doing some you know part-time  

job getting some earned income are now going  to be eligible for the earned income tax credit

something else that has changed is the dollar  amount that these folks these single taxpayers  

are going to be eligible to receive last year  the maximum benefit for a single taxpayer with no  

child was 538 dollars this year it's almost triple  that amount it's fifteen hundred and two dollars  

and the income requirements are much higher  they've increased the income requirements  

to still get on them uh get earned income tax  credit is twenty one i'm sorry 21 430 dollars  

which has increased by almost you know forty  eighty six hundred dollars over last year so  

again more folks are going to be eligible  to collect the earned income tax credit  

this year another wrinkle with the earned  income tax credit is we can continue to use  

prior year income to calculate the earned income  tax credit and this is a result of the coronavirus  

uh pandemic uh but a wrinkle on all of this is is  that you have to use your 2019 earned income you  

cannot use when you're when you're calculating it  based on prior year earned income you cannot use  

the 2020 amount that's not going to be relevant  it will go back and we will look at the 2019  

amount now there's a new line on actually on the  1040 and we're actually going to have to enter it  

on the 1040 it's actually going to be on our forms  where we will enter it in previously whenever we  

use prior year income to calculate the earned  income tax credit it was something that was  

reported in the margins so that's that's  all i have on the earned income tax credit