EITC Modernization Act

Bill Number

H.R. 905

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-01-31: Referred to the House Committee on Ways and Means.

Last Updated

2026-05-01T13:06:24Z

AI-Generated Summary

Purpose of the Legislation

The EITC Modernization Act aims to expand and update the Earned Income Tax Credit (EITC), a refundable tax credit that provides financial support to lower- and middle-income working individuals and families. It seeks to broaden eligibility to include more taxpayers with dependents and qualifying students, enhance accessibility through payment options and support programs, and address income inequality by supplementing wages for low-wage workers.

Key Provisions

• Expansion of Eligibility for Dependents:
• Replaces "qualifying child" with "qualifying dependent," which now includes qualifying children, aged dependents (dependents aged 65 or older eligible for a deduction under tax rules), and certain qualifying individuals (e.g., those who qualify for the child and dependent care credit but are not children).
• Requires taxpayers to provide the name, age, and Taxpayer Identification Number (TIN) for dependents, and the dependent must live in the U.S. for more than half the year.

• Inclusion of Qualifying Students:
• Adds eligibility for "qualifying students," defined as eligible students (as per higher education tax rules) at accredited institutions who are not claimed as dependents by others.
• Students must either qualify for a Federal Pell Grant or have modified adjusted gross income (AGI, a measure of taxable income after certain adjustments) below 250% of the federal poverty line for their family size.

• Minimum Credit Amount:
• Establishes a $1,200 minimum EITC for qualifying students or eligible individuals with "specified dependents" (qualifying dependents other than children aged 7 or older).

• Monthly Payment Option:
• Allows eligible taxpayers with EITC refunds over $240 to elect monthly payments instead of a lump sum: 2/13ths in the first or second month after filing (4/13ths for first-time users), followed by 1/13th monthly for 11 months.
• Payments are made via direct deposit, prepaid card, or other non-check methods, including interest.

• Special Rule for New Parents:
• For low-income parents receiving monthly EITC payments, if a qualifying child is born or adopted during the next tax year (by the second-to-last month of payments), payments adjust upward to reflect the new child.

• Age Adjustment for Childless Workers:
• Lowers the minimum age for EITC eligibility without dependents from 25 to 18 (up to age 65).

• Return Preparation Grant Program:
• Creates a Community Volunteer Income Tax Assistance Matching Grant Program through the IRS.
• Provides matching grants (up to $30 million annually, excluding admin costs) to qualified entities (e.g., nonprofits, colleges, local governments, tribes) for low-income tax return preparation programs.
• Funds can cover training, equipment, outreach, and financial education but not unrelated overhead.
• Prioritizes programs serving low-income taxpayers (income below EITC phaseout for a family of five), underserved groups (e.g., disabled, non-English speakers, rural residents, military families, elderly), and those promoting EITC awareness.
• Requires 90%+ accuracy in returns, full quality reviews, trained volunteers, and periodic IRS audits; low performers must correct issues for future grants.
• IRS must promote these programs and refer taxpayers to them.

All changes apply to tax years beginning after enactment.

Significant Changes to Existing Law

• Broadened EITC Scope: Previously limited to those with qualifying children or specific other individuals, the EITC now explicitly includes elderly dependents and low-income students without dependents, potentially increasing beneficiaries.
• Payment Flexibility: Introduces optional monthly disbursements for EITC refunds, a new feature not in current law, to provide steadier income support.
• Age Threshold Reduction: Removes the 25-year-old minimum for childless claimants, aligning eligibility closer to the general working age.
• Support Infrastructure: Adds a dedicated grant program (Section 7526B) for volunteer tax assistance, expanding on existing Volunteer Income Tax Assistance (VITA) efforts with matching funds, priorities for underserved groups, and stricter accuracy standards.
• Conforming Updates: Adjusts credit tables, definitions, and identification rules throughout the Internal Revenue Code to reflect these expansions.

Potential Impacts

• On Citizens: Low- and middle-income workers, families with dependents (including elderly), and students could receive higher or more accessible credits, reducing poverty, boosting spending on essentials (e.g., food, housing, education), and encouraging employment. Monthly payments may improve financial stability, especially for new parents. The grant program could simplify tax filing for millions of low-income individuals, increasing EITC claims.
• On Government Agencies: The IRS will face increased administrative burdens, including processing expanded claims, monthly payments, accuracy reviews, and grant management (up to $30 million/year). This may require additional funding and staff, potentially raising federal costs but yielding economic benefits through poverty reduction.
• On International Relations: No direct impacts; the bill focuses on domestic tax policy.
• Broader Economic Effects: As noted in findings, expanded EITC could narrow income gaps, stimulate local economies via increased consumer spending, and support child health/education, though it may increase federal spending on refunds.

Main Stakeholders Affected

• Low-Income Workers and Families: Primary beneficiaries, including those with children, elderly dependents, or new parents, gaining expanded credits and payment options.
• Qualifying Students: Low-income higher education students eligible for Pell Grants or below income thresholds, now able to claim EITC independently.
• Underserved Populations: Groups like rural residents, non-English speakers, disabled individuals, Native Americans, military families, and the elderly, targeted for tax assistance grants.
• Nonprofits, Educational Institutions, and Local Governments: Eligible for grants to run tax preparation programs, including tribes and coalitions.
• Internal Revenue Service (IRS): Responsible for implementation, grants, promotions, and oversight.
• Taxpayers Generally: Indirectly affected through potential tax system changes and fiscal policy shifts.

Notable Legal, Constitutional, or Political Implications

• Legal: Amendments to the Internal Revenue Code (e.g., Sections 32, 7526B) are straightforward tax policy changes, requiring no new regulations beyond IRS guidance on implementation. Identification and residency rules ensure compliance with existing anti-fraud measures (e.g., TIN requirements). The grant program's matching structure and eligibility criteria align with federal grant laws, emphasizing accountability via audits.
• Constitutional: No apparent challenges; expansions fall under Congress's taxing and spending powers (Article I, Section 8). It promotes equal protection by aiding low-income groups without discriminating by race, gender, or other protected classes.
• Political: Highlights congressional focus on income inequality and worker support, building on the EITC's 1975 origins. Could spark debates on fiscal costs (increased refunds) versus benefits (poverty reduction, economic stimulus). The bill's introduction by a bipartisan group of Democrats signals potential partisan divides in funding and passage, especially amid broader tax reform discussions.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Watson Coleman, Bonnie [D-NJ-12]

Cosponsors (17)

Rep. Hayes, Jahana [D-CT-5], Rep. McIver, LaMonica [D-NJ-10], Del. Norton, Eleanor Holmes [D-DC-At Large], Rep. Bishop, Sanford D. [D-GA-2], Rep. Johnson, Henry C. "Hank" [D-GA-4], Rep. Thompson, Bennie G. [D-MS-2], Rep. Clarke, Yvette D. [D-NY-9], Rep. Cherfilus-McCormick, Sheila [D-FL-20], Rep. Ansari, Yassamin [D-AZ-3], Rep. McDonald Rivet, Kristen [D-MI-8], Rep. Wilson, Frederica S. [D-FL-24], Rep. Kamlager-Dove, Sydney [D-CA-37], Rep. Mfume, Kweisi [D-MD-7], Rep. Foushee, Valerie P. [D-NC-4], Rep. Brown, Shontel M. [D-OH-11], Rep. McClellan, Jennifer L. [D-VA-4], Rep. Tokuda, Jill N. [D-HI-2]

Recent Actions

• 2025-01-31: Referred to the House Committee on Ways and Means.
• 2025-01-31: Introduced in House
• 2025-01-31: Introduced in House

Bill Versions

• EITC Modernization Act — issued 2025-01-31 — PDF (19 pages)