House Democrats push for permanent earned income tax credit expansion

KEY POINTS

• The earned income tax credit provides a write-off for low- to moderate-income families. 
• The American Rescue Plan signed by President Joseph Biden in March temporarily expanded the credit by widening eligibility and increasing the tax break.
• House Democrats have proposed making these changes permanent as part of the $3.5 trillion spending plan, offering an income boost for millions of Americans, policy experts say.

President Joe Biden speaks alongside US Vice President Kamala Harris (3rd L), as he holds a meeting with US Senators, including Ben Cardin (L), Democrat of Maryland, Jim Inhofe (2nd L), Republican of Oklahoma, Tom Carper (2nd R), Democrat of Delaware, and Shelley Moore Capito (R), Republican of West Virginia, about infrastructure improvements, in the Oval Office of the White House in Washington, DC, February 11, 2021.

Saul Loeb | AFP | Getty Images

House Democrats have unveiled a comprehensive package of social and climate change proposals, including a boost for millions of Americans with a permanent expansion of the earned income tax credit.

The earned income tax credit provides a write-off for low- to moderate-income families. Taxpayers must have earned income — wages and payments not including investments — and the credit may increase for families with eligible children.

"The earned income tax credit is a proven boost for people who do important jobs but receive low pay," said Kris Cox, deputy director of federal tax policy at the Center on Budget and Policy Priorities.

"And there's been a major flaw in that it has really left out adults who don't raise children in the home," she said.

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The credit is a percentage of earnings, and it's refundable, meaning it may reduce someone's tax bill or provide a refund, even if it's more than what they owe.

Previously, workers without children have received little benefit from the earned income tax credit. However, the American Rescue Plan increased the benefit for these individuals up to $1,502 in 2021, almost triple the former write-off. 

The earned income tax credit is a proven boost for people who do important jobs but receive low pay.

Kris Cox

Deputy director of federal tax policy at the Center on Budget and Policy Priorities

The measure also widened eligibility by raising the earned income limit to $21,430 ($27,380 for married couples) and expanded age ranges to include Americans as young as 19 and filers over 65.

There's an Internal Revenue Service tool to see who qualifies.

House Democrats want to make the temporary expansions of the earned income tax credit permanent, according to a 645-page bill released Friday, effective after Dec. 31, 2021.

Before the American Rescue Plan, 5.8 million filers may have been taxed deeper into poverty in large part by the lower earned income tax credit, the Center on Budget and Policy Priorities estimates.  

"The American Rescue Plan in March took a bold step in correcting that flaw," said Cox, noting that 2.5 million Black and Latino working Americans may have been disproportionately affected.

"This correction is not only a major step forward for adults who are not raising children in the home but it also has real racial equity implications," she added.

A permanent expansion may cost $135 billion over the next decade, the Joint Committee on Taxation estimates. 

If enacted, the increased credit may provide $12.4 billion to families in 2022, affecting 19.5 million workers, research from the Institute on Taxation and Economic Policy shows.