The Earned Income Tax Credit (EITC), also known as the Earned Income Credit (EIC), has been an important guide for low-income driving families since its inception in 1975. This tax credit helps individuals’ eligible homes Or helps to relieve the financial burden. Here is a complete guide on knowing and determining eligibility for this great tax benefit.
What is the Earned Income Tax Credit?
The EITC is a refundable credit designed to help low to moderate-profits people and households. Unlike non-refundable tax credit, that may simply reduce tax legal responsibility to zero, the EITC can doubtlessly result in money back, despite the fact that the taxpayer’s tax liability is already 0. This makes it specifically valuable for people with low incomes.
Qualifying for the EITC
To qualify for the Earned Income Tax Credit, people need to meet particular eligibility criteria. Here’s what you want to know:
Earned Income Definition
The IRS defines earned earnings as profits from wages, salaries, hints, self-employment, or positive incapacity blessings. This encompasses numerous resources of profits derived from lively work.
Social Security Number (SSN)
Both the taxpayer and their spouse (if filing alternately) are required to have a valid valid Social Security Number (SSN) and a return by the due date the tax is paid. If the nonresident spouse has an Individual Taxpayer Identification Number (ITIN) instead of an SSN, the income tax credit cannot be claimed. In addition, each eligible baby must actually have a valid SSN.
Age Requirements
There is no higher age limit for claiming the EITC so long as the taxpayer has earned earnings. Previously, eligibility for individuals without dependents changed into limited to the one’s elderly 25 to 64. However, latest expansions have broadened get entry to, such as provisions for people elderly 18 who were formerly in foster care or experiencing homelessness. Full-time college students under the age of 24 usually do not qualify.
Additional Criteria
For tax 12 months 2021, the EITC has gone through enormous expansions, particularly for childless employees and couples. The most credit has nearly tripled for those taxpayers, and eligibility has been prolonged to more youthful employees and senior citizens.
Income Limits for 2021 Tax Returns
For 2021, the EITC is generally available to filers without qualifying children who are at least 19 years old with earned income below $21,430 for single filers ($27,380 for spouses filing a joint return).
| Children or Relatives Claimed | Max AGI (filing as Single, Head of Household, Widowed or Married Filing Separately) | Max AGI (filing as Married Filing Jointly) |
|---|---|---|
| Zero | $21,430 | $27,380 |
| One | $42,158 | $48,108 |
| Two | $47,915 | $53,865 |
| Three | $51,464 | $57,414 |
Income from 2019
Another change for 2021 allows individuals to figure the EITC using their 2019 earned income if it was higher than their 2021 earned income. To qualify for the EITC, people must have earned income through employment or other sources, so this option may help workers get a larger credit if they earned less in 2021 or received unemployment income instead of their regular wages. See the instructions for Form 1040, line 27 c.
Phase Out & Credit Limits
For 2021, the quantity of the credit has been elevated and the phaseout income limits at which taxpayers can declare the credit score had been accelerated. For instance, the maximum EITC for a married couple filing collectively with three or more youngsters is $6,728 and the upper-profits level for that identical family is $57,414. (In 2020, the maximum EITC for a circle of relatives in that situation turned into $6,660 and the top-profits degree became $56,844.)
The most EITC for filers with no qualifying youngsters are $1,502.
For tax year 2021, the most amount you can declare for the Earned Income Tax Credit is:
- $1,502 with no qualifying youngsters
- $3,618 with one qualifying child
- $5,980 with two qualifying youngsters
- $6,728 with 3 or more qualifying youngsters
Taxpayers should also note that any financial impact payments or child tax credits received are not taxable or count as income for purposes of the EITC. Eligible individuals who have not received all of the financial impact reimbursements will also be able to declare a refund on their 2021 tax return.
Qualifying Child Rule
For EITC functions, a qualifying child ought to have a Social Security Number (SSN). Your child is considered a “qualifying toddler” if your infant meets all 4 checks designed through the IRS. The four checks are: Relationship check, Age take a look at, Residency check, and Joint Return test. The 4 checks are illustrated in IRS Publication 596 (Earned Income Credit).
In widespread, a qualifying infant must be carefully related to you, be younger than age 19 (or age 24 in the event that they’re a complete-time scholar), and live with you in the United States for extra than half of of the 12 months. A qualifying baby can’t report a joint tax go back for that 12 months (except your qualifying toddler and their partner simplest report a joint return to claim a tax refund). Your qualifying infant can not be utilized by another person to assert the Earned Income Credit. Furthermore, you can not be the qualifying baby of every other taxpayer if you need to say the EITC in your own tax return.
Filing Status Requirement
Your filing status cannot be “Married Filing Separately” if you want to claim the Earned Income Tax Credit. All other filing statuses — including Single, Married Filing Jointly, Head of Household, and Qualifying Widow(er) with Dependent Child — are eligible for this tax credit.
Foreign Residents & Foreign Income
You must be a U.S. Citizen. A complete-yr resident or alien resident earlier than you may declare the earnings tax credit score. If you are a non-citizen alien married to a U.S. Citizen. Citizen or resident alien, you could record a joint tax go back and decide on to be handled as a U.S. Resident. Price instead. To declare the EITC, you also can not report Form 2555 (Foreign Income) or Form 2555-EZ (Foreign Income Source). The overseas profits exclusion applies to U.S. Revenues. Citizens and resident aliens residing and running overseas.
For more information, please refer to IRS Publication 519 (U.S. Tax Guide for Aliens).
Investment Income Limit
To qualify for the earnings tax credit score in tax yr 2021, your savings have to be $10,000 or less. For purposes of the EITC, investment income typically consists of interest, dividends, and capital profits. This can include royalties and passive activities from Schedule E, even though maximum taxpayers don’t must address those gadgets.
How to Claim the Earned Income Tax Credit (EITC)
The EIC is reported on Line 27a of Form 1040 (U.S. Individual Income Tax Return).
If you have a qualifying child, you will need to file a Schedule EIC (Earned Income Credit) with your Form 1040. If you are claiming the tax credit without a qualifying child, you do not need to use Schedule EIC. Schedule EIC is designed to provide the IRS with information about each qualifying child you are claiming for the tax credit. Even if you have more than three qualifying children, you only need to report three of them on Schedule EIC.
The IRS offers an EITC Assistant tool on its website, which assists individuals in determining their eligibility for the Earned Income Tax Credit.
To learn more about this tax benefit, you can refer to IRS Publication 596 (Earned Income Credit).
