The Earned Income Tax Credit (EITC) is a refundable federal income tax credit designed to assist low and moderate-income families by supplementing their wages. It is one of the most significant anti-poverty programs in the United States and was first introduced as part of the Tax Reduction Act of 1975.

The EITC provides financial relief to those who earn too much to qualify for other forms of welfare, yet too little to make ends meet. It reduces the tax liability of low-income taxpayers, thus increasing their take-home pay. While it is not a government handout, the returned money can help families purchase food, pay rent, buy medical supplies and other necessities.

The program makes payments to the qualifying families or individuals based on their income level. Two general tiers exist: first, a maximum credit amount; and second, a phase-out of the credit for those who make more than the maximum allowed for the tier. Recipients of the EITC receive a percentage of the amount of their earned income on a sliding scale. The percentage varies depending on how much was earned, as well as how many dependents the tax filer claims.

For 2021, the maximum EITC credit amount is $6,728 for those with three or more dependents, and $5,728 for those with two dependents. There are also rules that apply to the phase-out for married couples filing jointly. For example, for the 2021 tax season, the phase-out starts at $5,000 of earned income over the adjusted gross income (AGI) of $21,710, and ends at $20,000 of earned income over the AGI of $53,330.

In addition to the increases to the EITC amounts, the American Rescue Plan Act (ARPA) of 2021 revised a number of other EITC rules for the 2021 tax year. A few of the most prominent revisions include allowing taxpayers with non-child dependents to be eligible for the EITC for the first time; creating a new tax credit for non-child dependents of qualifying taxpayers; increasing the age range for qualifying children; and expanding the eligibility of the child and dependent care credit.

The EITC is a valuable resource for low-income taxpayers, and the American Rescue Plan Act provides some additional support to the program. While it was previously only available to taxpayers with children or other dependents, the ARPA now allows EITC payments to be extended to those with no dependents under certain circumstances. The credit is a great way to help reduce the burden of taxes and provide additional financial support to those who need it most.