H.R. 905, the EITC Modernization Act, would overhaul and broaden the federal earned income tax credit (EITC). Its central aim is to extend the EITC to all taxpayers with dependents and to qualifying students, expanding who can receive the credit and how it is calculated. Key changes include redefining who is eligible for the EITC to include dependents beyond just qualifying children, adding a new category of “qualifying student,” guaranteeing a minimum credit for certain students and dependents, and introducing a monthly payment option for eligible refunds. The bill also creates a new government program to support low-income tax preparation services and expands eligibility to individuals without dependents (starting at age 18). It was introduced in the 119th Congress by Representative Watson Coleman and referred to the Ways and Means Committee. In short, the bill aims to reduce poverty and support working families by broadening EITC eligibility, stabilizing cash flow through monthly payments, extending support to students, and improving access to free tax preparation services for low-income taxpayers.
Key Points
- 1Expanded eligibility for the EITC to include qualifying dependents (not just qualifying children) and to qualifying students, with definitions and identification/place-of-abode rules to determine who counts as a dependent.
- 2Qualifying student provision: defines a qualifying student as an eligible student at a higher education institution who is not a dependent of another taxpayer, and who either qualifies for a Federal Pell Grant or has modified adjusted gross income under 250% of the poverty line for the family size.
- 3Minimum credit guarantee: for qualifying students or for eligible individuals with a specified dependent, the EITC cannot be less than $1,200, with “specified dependent” defined as certain qualifying dependents (excluding younger qualifying children under age 7 for this minimum).
- 4Monthly payment option: allows a refund related to an overpayment to be paid out in monthly installments (with a specific 13-month schedule and payment methods), rather than as a single lump-sum refund.
- 5New low-income parents and age rule changes: creates a special rule adjusting monthly payments if a qualifying child is born or adopted in the following year; removes the dependent-less EITC age range restrictions by setting the age for eligibility without dependents at 18 (instead of 25 to 64); otherwise, the effective date of these changes applies to taxable years beginning after enactment.