Who Qualifies For The Earned Income Credit??
Editor’s note: This article has been updated to reflect updates to the Earned Income Credit from the American Rescue Plan Act of 2021.
The Earned Income Credit (EIC), otherwise known as Earned Income Tax Credit (EITC) is a valuable credit for low-income taxpayers who work and earn an income of a certain amount.
This credit is highly valuable and is often missed—allowing you to keep more of your hard-earned money.
Good news for your 2020 and 2021 tax returns
A special “lookback” rule in the Dec. 2020 stimulus bill lets taxpayers claim this valuable credit – even if your income was higher in 2020 and 2021.
If your 2019 earned income is higher than your 2020 earned income, and results in a higher credit, the lookback allows you to use 2019 earned income to calculate the 2020 earned income credit.
Taxpayers can use their 2019 earned income to calculate their credit for tax year 2021 if your earned income in 2021 is less than it was in 2019 and using the lookback results in a higher credit. This bears no effect on your calculation of gross income. The IRS will have math error authority to correct an error if one is made under this section.
If you qualify for this tax credit, you can reduce your taxes and increase your tax refund. The credit ranges from a few hundred to thousands of dollars depending on your tax filing status and quantity of qualifying children.
But it can be difficult to understand the rules surrounding this underutilized tax credit, which is why some people shy away from this credit. Read on to learn more about what it is, why it’s beneficial, and how to qualify for the Earned Income Credit.
How much is the Earned Income Tax Credit worth?
Taking the time to check the Earned Income Credit eligibility can pay off, as the tax benefit can be worth up to $6,660 depending on your:
Number of qualifying children who can’t be claimed by another taxpayer
(Keep in mind: The Earned Income Credit is refundable, so you can receive the credit as part of your refund.)
What exactly qualifies as earned income?
Earned income includes:
Long-term disability benefits
Net earnings from self-employment
Non-taxable combat pay
Union strike benefits
What sources of income doesn’t qualify?
Passive income, or income you aren’t actively generating on your own, like interest and dividends
Pay you get while incarcerated, retirement income, Social Security, unemployment benefits and alimony
Earned Income Credit eligibility
You’re probably wondering how to qualify for the Earned Income Tax Credit.
Here’s more information about the Earned Income Credit eligibility.
Earned Income Credit eligibility includes the following:
You and your spouse (if filing jointly) must have valid Social Security numbers (SSN) by the due date of your tax return (including extensions)
You can’t file as married filing separately (MFS)
You must be a U.S. citizen or resident alien all year
You can’t file a Form 2555
Starting in 2021, you must have investment income of $10,000 or less (previously, it was $3,650)
You can’t be a dependent or qualifying child of another person for EIC purposes
You must have earned income less than the AGI limit for your filing status and number of qualifying children
Earned Income Tax Credit eligibility if you have no children
If you don’t have qualifying children, Earned Income Tax Credit eligibility is as follows:
You must not be a dependent of another taxpayer.
You must not be a qualifying child of another taxpayer.
You must live in the United States for more than half the year.
Childless taxpayers have no maximum age limit for tax year 2021. (Previously it was 65.) Additionally, the minimum age to qualify is 19 years (previously it was 25).
The Earned Income Credit income limit
Taxpayers, take note of the tax year 2021 childless EIC increase.
For tax year 2021 only, the amount of the credit increases for eligible taxpayers with no qualifying children as part of the American Rescue Plan Act. Additionally, eligibility for the credit is expanded to higher-income taxpayers.
To qualify for the earned income credit prior to if you don’t have a qualifying child in for your 2021 tax return, here are the new limits:
The childless earned income amount for tax year 2021 is $9,820 (up from $4,220).
The childless phaseout for tax year 2021 is $11,610 (up from $8,880).
The phase-in and phaseout rates also doubled, and for tax year 2021 is 15.3% (up from 7.65%).
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