Rev. Proc. 2021-23
Table of Contents
SECTION 1. PURPOSE
SECTION 2. CHANGES
SECTION 3. 2021 INCREASED REFUNDABLE CHILD TAX CREDIT
SECTION 4. 2021 EARNED INCOME CREDIT AS MODIFIED AND SURPERSEDED
SECTION 5. APPLICABLE PERCENTAGE TABLE FOR 2021 AS MODIFIED AND SUPERSEDED
SECTION 6. EFFECT ON OTHER DOCUMENTS
SECTION 7. EFFECTIVE DATE
SECTION 8. DRAFTING INFORMATION
SECTION 1. PURPOSE
The recently-passed American Rescue Plan Act contains several tax breaks for you and your family. Here are the major provisions of the bill that could mean more money in your pocket during the 2021 tax year.
Child tax credit (CTC)
- The CTC for 2021 increases from $2,000 to $3,000 for kids ages 6 to 17 and $3,600 for kids ages 5 and under.
- To receive the full tax credit your adjusted gross income must be under $75,000 (Single); $150,000 (Joint); or $112,500 (Head of Household).
- If your income is above the aforementioned thresholds, you can still receive $2,000 per child if your income is less than $200,000 (Single, Head of Household); or $400,000 (Joint).
- You can receive up to 50% of your 2021 child tax credit in 6 monthly payments starting July 2021. The IRS is warning, however, that this July start date may be delayed because a computer system still has to be built to handle these monthly payments.
Child and dependent care credit (DCC)
The Internal Revenue Service and its partners nationwide remind taxpayers about the Earned Income Tax Credit on January 31, “EITC Awareness Day.” This is the 14th year of the EITC awareness campaign that alerts millions of workers to this significant tax credit.
“The EITC is a vital tax credit that helps millions of hard-working working families around the nation,” said IRS Commissioner Chuck Rettig. “It’s critical that people review the credit to see if they qualify. Increasing awareness about the EITC is important, and the IRS is proud to support the ongoing efforts by partner groups across the country for sharing this critical information with taxpayers.”
There are outreach events and activities scheduled to promote EITC awareness around the country. The EITC is the federal government’s largest refundable federal income tax credit for low- to moderate-income workers. It can give taxpayers a refund even if they owe no tax.
The Earned Income Tax Credit (EITC) is one of the primary forms of public assistance for low income working taxpayers. However, the EITC is associated with a high improper payment rate. According to the Treasury Department’s Fiscal Year (FY) 2018 Agency Financial Report, the FY 2018 EITC improper payment rate is approximately 25 percent. A principal cause of the EITC improper payment rate is the complexity of the rules for claiming EITC, as reported by the Department of Treasury here and here. While I recognize the importance of tracking and minimizing improper payments, I am concerned that the focus on “a number” masks both the successes and challenges in improving EITC compliance. In fact, EITC improper payment estimates are based on audits of tax years four years in the past and do not reflect the most recent remedial measures. Additionally, the Treasury Inspector General for Tax Administration (TIGTA) reports that the EITC improper payment rate does not take into account that for every dollar of EITC improper payments, 40 cents of EITC went unclaimed by taxpayers who appear to be eligible for the credit.
In this year’s Annual Report to Congress I reported that IRS actions to reduce the EITC improper payment rate are not sufficiently proactive and may unnecessarily burden taxpayers. For instance, despite the acknowledged complexity of the rules for claiming EITC as a cause of improper EITC claims, IRS and Treasury legislative proposals to address EITC improper payments center on enforcement measures rather than on simplification.
My June Report to Congress included an Area of Focus entitled: “The IRS Has Expanded Its Math Error Authority, Reducing Due Process for Vulnerable Taxpayers, Without Legislation and Without Seeking Public Comments.” The post-processing math error issue came up after a report by the Treasury Inspector General for Tax Administration (TIGTA) said the IRS improperly paid refundable credits, including the Earned Income Tax Credit (EITC), to those filing 2016 returns with taxpayer identification numbers (TINs) (e.g., Social Security Numbers) that were issued after the due date of the returns. TINs are long strings of numbers that can easily contain typos. The IRS committed to “evaluate this population for inclusion in the appropriate post-refund treatment program.” Perhaps because it costs $1.50 to resolve an erroneous EITC claim using automated math error authority (MEA) compared to $278 for an audit (according to TIGTA), the Wage and Investment Division (W&I) planned to use MEA to recover these credits in 2018.
I asked Counsel about the legality of using MEA to disallow credits long after the IRS had processed the returns (i.e., post-processing) and paid them. Counsel responded on April 10, 2018, with a Program Manager Technical Advice (PMTA) that approved the practice (here). It concluded there were no due process concerns. This blog explores the due process that the government may be constitutionally required to provide before recovering EITC from those who depend on it to survive.
On June 15, 2012, the U.S. Department of Homeland Security (DHS) announced that it would not deport certain undocumented youth who came to the United States as children. Under a directive from the DHS secretary, these youths may be granted a type of temporary permission to stay in the U.S. called “deferred action.” The Obama administration called this program Deferred Action for Childhood Arrivals, or DACA. This article is designed to provide guidance for tax professionals preparing and filing tax returns for DACA recipients.
Can a simple educational letter to taxpayers who appear to have erroneously claimed the earned income tax credit (EITC) actually avert future noncompliance? Based on recent TAS research studies, the answer appears to be yes.
As readers of this blog already know, the EITC is a refundable credit designed to provide financial support to low income working taxpayers, especially those with children in the household. Because it focuses on household composition, the administration of the credit is very complex. While the IRS can generally establish the age of the child from various government databases, and sometimes the parent-child relationship, it cannot easily establish other relationships nor can it independently determine with whom the child lived for over half the year, as the law requires. Read More
Taxpayers who are not required to file a tax return may want to do so. They might be eligible for a tax refund and don’t even know it. Some taxpayers might qualify for a tax credit that can result in money in their pocket. Taxpayers need to file a 2017 tax return to claim these credits.
Here is information about four tax credits that can mean a refund for eligible taxpayers:
- Earned Income Tax Credit. A taxpayer who worked and earned less than $53,930 last year could receive the EITC as a tax refund. They must qualify for the credit, and may do so with or without a qualifying child. They may be eligible for up to $6,318. Taxpayers can use the 2017 EITC Assistant tool to find out if they qualify.
Many states exempt groceries from sales tax per the premise that food is a necessity of life. This is a poorly targeted exemption though in terms of helping low-income taxpayers. Higher income individuals spend more on food so get the bulk of the tax savings. If instead, groceries were taxed, tax relief could be better targeted to the taxpayers who need it via a refundable income tax credit based on income.
It’s true that this tax season some taxpayers have been unaware of a new rule that requires the IRS to hold tax refunds for taxpayers who claim the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit. As a result, the IRS has acknowledged that there are now a number of “misunderstandings and speculation about refunds.”
The addition of these two credits to the required due diligence of paid preparers in preparing a return that claims either or both was made by the PATH Act (P.L. 114-113, 12/18/15). The statutory language added at §6695(g) implied that regulations were needed. The IRS released draft Form 8867 and instructions in summer 2016, but did not release the regulations until 12/5/16. [TD 9799 (12/5/16) and REG 102952-16 (12/5/16)]
The IRS will not accept tax returns until January 23, 2017. The filing deadline will be April 18 due to April 15 falling on Saturday and the Emancipation Day holiday in Washington D.C. on April 17.
Congress (in the PATH Act) mandated the IRS to delay some refunds until February 15.