Legislation was reintroduced in late February to expand the Earned Income Tax Credit called the Cost-of-Living Refund Act of 2019. This bill would increase the size of the EITC as well as increase the number of tax filers eligible for the credit. The hope is that it would assist American families receiving smaller refunds than expected under Tax Reform. Some taxpayers who have several children may find that the loss of personal exemptions is not fully offset by the increase in the standard deduction and the Child Tax Credit. Also, some taxpayers may find that the lower tax rates do not fully offset the loss of certain itemized deductions, particularly the $10,000 cap on state and local taxes.
For the first time, the credit would be extended to students working to support themselves as they pursue their education, and people raising children or caring for ageing parents and other relatives!
The bill in a nutshell:
- Cost-of-Living Refund Act of 2019 would increase the phase-in rate, and the size of the Earned Income Tax Credit for filers with children, roughly doubling the credit for these filers.
- The maximum EITC for filers with children would increase from between $3,526 and $6,557 to $6,770 and $12,588, depending on family size.
- The Act would increase the phase-in rate and the income threshold at which the maximum credit is reached, increasing the maximum credit from $529 to $3,111. The credit for childless filers would then phase out at 15.98 percent instead of 7.65 percent.
- The eligibility age for childless filers would decline from 25 to 21 and eligibility would expand to qualified students.
- Qualified dependents for the purposes of the EITC would be expanded to include parents and other relatives.
- Taxpayers would be allowed to receive an advance up to $500 per year of their EITC refund.
It’s all good news: The credit amount for filers with two children would max out at $11,190 under the new law vs. $5,828 under current law. The result is that the credit phases out over a much larger range of income. Married couples with adjusted gross incomes (AGIs) as high as $77,963 receive the credit under this proposal compared to current law under which only families with income up to $52,493 receive the credit. As a result, married couples with two children with AGIs between $52,493 and $77,963 would face a 21.06 percentage point increase in their effective marginal tax rate.
Contact Us: Fuoco Group will keep you updated on new tax legislation as it is introduced. The budgetary impact of this particular bill is still being studied. Due to the phase out of the credit as discussed, only the top 40 percent of taxpayers would see little to no benefit from the Cost-of-Living Refund Act of 2019 credit. However, overall it would greatly increase the progressivity of the U.S. tax code. No matter what your tax bracket, proper tax planning can have a big effect on your after-tax income. Call one of our tax and accounting professionals today, toll free, at 855-534-2727.
