Expanded Tax Credits for Low-Income Families: What You Need to Know

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Low-income Americans could get a lifeline if a key tax credit remains boosted.

When the $1.9 trillion American Rescue Plan was passed in March, it did more than just put stimulus funds into Americans' bank accounts. It also expanded a number of important tax credits.

The boosted Child Tax Credit has gotten a lot of attention because it applies to so many families. That credit used to max out at $2,000 per child and was only partially refundable -- so someone entitled to it couldn't get all of their money back if they owed the IRS no tax. Now, the Child Tax Credit is worth up to $3,600 per child and is fully refundable.

Meanwhile, another important tax credit called the Earned Income Tax Credit, or EITC, also got boosted as part of the most recent stimulus bill. The EITC isn't as accessible as the Child Tax Credit because the income limits associated with it are much lower. But it's an important credit nonetheless.

Like the current version of the Child Tax Credit, the EITC is, and always has been, fully refundable. And thanks to the American Rescue Plan, it's now more accessible to people who don't have children.

In fact, those without children can receive up to $1,502 this year, which is almost triple the amount the EITC previously provided for tax filers without dependents. The American Rescue Plan also raised the earnings limit for the EITC and expanded eligibility to people as young as 19 as well as those over 65 who formerly didn't qualify.

The expanded Child Tax Credit is only applicable to the current tax year, and these EITC changes also have an expiration date. Come 2022, the EITC is set to revert to its former state. But lawmakers are fighting to keep the enhanced version in place permanently.

A critical lifeline for lower earners

If the pandemic has taught us one thing, it's that some of the country's lowest earners are also the most essential. Unfortunately, many essential workers don't earn enough money to comfortably pay their bills and build a financial cushion for emergencies. So the expanded EITC is helping many people shore up their finances on a near-term basis.

Now, House Democrats want to make the expanded EITC a permanent fixture of the tax code. If they get their way, the increased credit could provide $12.4 billion to families in 2022, impacting 19.5 million workers, according to the Institute on Taxation and Economic Policy.

At the same time, Democratic lawmakers are pushing to keep the expanded Child Tax Credit in place through at least 2025. And many want to see the enhanced version become permanent as well. If that were to happen, it would help significantly reduce the child poverty rate on a national level and make it easier for millions of families to stay afloat.

Just as Republican lawmakers have pushed back against efforts to keep the enhanced Child Tax Credit in place beyond 2021, so too are they likely to argue against making the expanded EITC permanent. But given the impact both boosted credits have the potential to make, Democrats are likely to put up a solid fight.

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