The Earned Income Tax Credit (EITC) is the nation’s largest program for low-to-moderate income workers. According to the IRS, about 25 million eligible filers received the EITC last year, and the average EITC was about $2,411. However, millions of taxpayers are still missing out on this valuable tax credit, and the IRS reports that one in five eligible filers do not claim the tax credit.
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You might wonder why anyone would miss a tax credit of up to $6,728 in 2021 for a family with three or more children? Well, many people who qualify for the credit miss it because they are newly qualified or choose not to file a tax return because their income is below the IRS tax filing limit (for the tax year 2021, it’s $12,550 for singles and $25,100 for those married filing jointly).
As a result of events in 2021, you may have experienced a drop in income and may be newly qualified for the EITC where you may not have previously been eligible, but to obtain the credit you must make sure you file your federal taxes application this year.
Want to know more about the EITC? Here are answers to important tax credit questions and information on how you may qualify.
What exactly is the earned income tax credit?
The EITC is a refundable tax credit given to taxpayers who earn low to moderate income from employment or self-employment. Although this may eliminate the taxes you owe, you may also receive a tax refund for the amount of your credit if the credit is greater than the amount of taxes you owe.
Who can claim the earned income tax credit?
In general, you may be eligible for the EITC if you meet the income limits listed below and all of the following conditions apply:
- You are a U.S. citizen or resident alien year-round
- Have a valid social security number on your 2021 return due date (including extensions)
- Must meet certain requirements if you are separated from your spouse and not filing a joint return
- You have earned employment income. Unemployment income does not count.
- You may qualify if you have income from a home-based business or provide services
- You cannot file Form 2555 (relating to income earned abroad)
While you may have interest, dividends, and other investment income, your investment income must be less than $10,000 in 2021. Most importantly, you must file your federal tax return in order to claim this valuable credit.
Beginning with tax year 2021 (the taxes you file in 2022), as part of the US bailout, the Federal Earned Income Tax Credit (EITC) has been extended to workers without children and almost triples the maximum credit. Eligibility is also extended to a wider range of filers, including those over 65 or between 19 and 25 years old.
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What are the income limits?
The limits are adjusted each year, and for the 2021 tax year, your earned income and adjusted gross income must be less than:
- $51,464 ($57,414 married filing jointly) with three or more eligible children
- $47,915 ($53,865 married filing jointly) with two eligible children
- $42,158 ($48,108 married filing jointly) with one qualifying child
- $15,980 ($21,920 married filing jointly) with no eligible children
What is the amount of the loan?
Your income and the number of eligible children will determine the actual amount of your credit.
For the 2021 tax year, the maximum credits are as follows:
- $6,728 with three or more eligible children
- $5,980 with two eligible children
- $3,618 with an eligible child
- $543 without eligible children
What is an eligible child?
A child is eligible if they meet four criteria of age, relationship, residency and joint return as follows:
- Age: Generally, your child must be under 19, under 24 if a full-time student, or any age if permanently and totally disabled.
- Relationship: Your child must be your son, daughter, adopted child or son-in-law (including all of their respective children). Your “eligible child” may also be your brother, sister, step-brother or step-sister, or step-sister or brother (including all of their respective children).
- Residence: Your child must have lived with you in the United States for more than half the year.
- Joint declaration: Your child must not have filed a joint declaration. If they filed a joint return, it should have been because they were claiming a tax refund, not because they were actually required to do so.
When can I expect to receive my refund if it includes the EITC or Additional Child Tax Credit?
Under the Protecting Americans from Tax Hikes (PATH) Act, enacted in December 2015, the IRS cannot issue refunds that include Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) before mid-February.
The PATH Act, which applies to all methods of tax preparation, is intended to help detect and prevent tax evasion. The extended refund release also gives the IRS more time to ensure that taxpayers claim the credits correctly, so that they get the refund they are owed.
The IRS began accepting and processing tax returns on January 24, 2022 and anticipates mid-February for many EITC and ACTC taxpayers if they file electronically with direct deposit and there are no problem with their tax returns.
The IRS encourages you to file as soon as possible so you can get closer to your tax refund!
What if I haven’t filed my taxes for a few years and I may be eligible for the EITC for previous years?
If you haven’t filed your taxes for a few years, now is a good time to file your past tax returns, as you may qualify for the EITC in those previous years. If you are eligible for a tax refund, you have three years from the filing deadline to file your tax return for a tax refund or to claim a credit such as the Earned Income Tax Credit . So if you haven’t filed your 2018 taxes, you would have until April 18, 2022 to file for an EITC.
The IRS reports nearly $1 billion in unclaimed tax refunds each year, and many taxpayers are surprised to find that some of that money is rightfully theirs in the form of an income tax credit. income when they file returns for previous years. Previous years’ returns must be mailed in, but TurboTax has previous years’ tax products so you can file previous years’ taxes. If you filed a tax return for those years, but did not apply for the EITC and were eligible, you will need to file an amended return for that year.
Don’t worry about knowing the EITC tax rules when you file your taxes. TurboTax will ask you simple questions about you and calculate the tax credit if you are eligible based on your answers.