Earned Income Tax Credit (EITC): What It Is and Who Qualifies


Prices are skyrocketing at the fastest rate many Americans have ever seen, making one of the most popular tax credits for low-income workers all the more relevant: the labor income.

But while millions of taxpayers are eligible for the earned income credit, this particular tax relief is among the trickiest. IRS Commissioner Chuck Rettig told lawmakers in March testimony that the credit had a 25% error rate.

Here’s how the Earned Income Credit works, including what it is, who qualifies, and how you can claim the money to make sure you don’t leave money on the table when you file.

What is the Earned Income Tax Credit (EITC)?

The earned income tax credit is one of the largest refundable tax credits for the lowest paid workers in the country. Workers don’t have to pay taxes to qualify for the credit, and many taxpayers receive more money from the credit than they pay in federal income tax, according to the Internal Revenue Service (IRS). All of this means that the credit can either reduce the total taxes individuals owe or give them money back in the form of a refund.

Originally created in 1975 under the Ford administration, the credit was seen as a key work incentive for some of the lowest earners in the country, allowing them to recoup some of the money they paid throughout. of the year in social security payroll taxes – and offsetting the disproportionate burden. they suffered from the record inflation of the time.

The amount of total credit each worker is entitled to depends on their annual income, number of children and filing status. For taxes filed in 2022, the maximum credit workers can claim ranges from $1,502 to $6,728.

But even if you don’t have children, you can still qualify for the credit. Meanwhile, so-called “childless” workers can receive nearly three times more credit than before (from $538 in 2020 to $1,502 in 2021), thanks to new pandemic-era extensions of the relief plan. American rescue of President Joe Biden. Unless extended in a new legislative package, however, workers who don’t have children will see a maximum credit worth $560 for 2022 taxpayer returns (or the 2023 tax season).

Who is eligible for the earned income tax credit

The Earned Income Tax Credit is aptly named: the most important eligibility criteria is having some form of earned income. Most of the time this means that taxpayers must have worked. The exact amount depends on the number of children you have and your filing status. In 2021, for example, single, single-headed, and married filers with one child must have earned at least $10,400 to be eligible for the full credit, according to the IRS.

This income can come from wages, salaries, tips, or other forms of compensation where federal income tax is withheld, according to the IRS. It can also be money from gig work, self-employment, pre-retirement disability benefits, or tax-free fight pay.

Earned income, however, does not include interest or dividend payments, or money you received from pension, annuity, unemployment insurance (UI), alimony, or of child support, the agency said.

To be eligible, taxpayers must also:

  • Have a valid social security number on their 2021 return due date;
  • Have $10,000 or less of investment income in the 2021 tax year (compared to $3,650 in 2020);
  • Not filing Form 2555 declaring income earned abroad; and
  • Be considered a U.S. citizen or resident alien for the entire year.

If you are going to claim a child for the credit, the child must be 18 or younger (or 24, if the child is a full-time student).

If you don’t have children, the eligibility requirements are slightly different than for the rest of the taxpayers, with the IRS requiring these individuals:

  • Live in the United States for more than half of the tax year;
  • Not be claimed as an eligible child on another’s tax return; and
  • Be at least 18 years old at the end of the year if you were previously homeless or in foster care; be at least 24 years old if you were a full-time student during the tax year; or at least 19 in all other cases.

Taxpayers’ eligibility for the credit also depends on their adjusted gross income (AGI) over multiple tax years – both current, previous and next. Thanks to an amendment to the American Rescue Plan, taxpayers can use their 2019 business earnings if they are greater than their 2021 earnings. This could result in a larger credit, according to the IRS.

The cuts are happening quite quickly, underscoring the nature of credit available to the lowest incomes in the country. For households with three or more children to get the full credit, single filers and heads of household cannot earn more than $19,300, while married couples have a threshold of $25,220. But as long as those single filers or heads of household earn no more than $50,954, they can earn at least a partial credit, just like married filers earning $56,844.

For 2021, workers without children can claim a maximum credit of $1,502, up from $538 in 2020. Credits increase for workers who have one or more qualifying children.

taxes 2020
Zero Single: $7,030
Heads of household: $7,030
Married: $7,030
Single: $8,790
Heads of household: $8,790
Married: $14,680
Single: $15,820
Heads of families: $15,820
Married: $21,710
$538
A Single: $10,540
Heads of families: $10,540
Married: $10,540
Single: $19,330
Heads of families: $19,300
Married: $25,220
Single: $41,756
Heads of families: $41,756
Married: $47,646
$3,584
Of them Single: $14,800
Heads of household: $14,800
Married: $14,800
Single: $19,300
Heads of families: $19,300
Married: $25,220
Single: $47,440
Heads of household: $47,440
Married: $53,330
$5,920
three or more Single: $14,800
Heads of household: $14,800
Married: $14,800
Single: $19,300
Heads of families: $19,300
Married: $25,220
Single: $50,954
Heads of families: $50,954
Married: $56,844
$6,660
Taxes 2021
Zero Single: $9,820
Heads of household: $9,820
Married: $9,820
Single: $11,610
Heads of families: $11,610
Married: $17,560
Single: $21,430
Heads of household: $21,430
Married: $27,380
$1,502
A Single: $10,640
Heads of families: $10,640
Married: $10,640
Single: $19,520
Heads of families: $19,520
Married: $25,470
Single: $42,158
Heads of families: $42,158
Married: $48,108
$3,618
Of them Single: $14,950
Heads of families: $14,950
Married: $14,950
Single: $19,520
Heads of families: $19,520
Married: $25,470
Single: $47,915
Heads of families: $47,915
Married: $53,865
$5,980
three or more Single: $14,950
Heads of families: $14,950
Married: $14,950
Single: $19,520
Heads of families: $19,520
Married: $25,470
Single: $51,464
Heads of household: $51,464
Married: $57,414
$6,728
taxes 2022
Zero Single: $7,320
Heads of household: $7,320
Married: $7,320
Single: $9,160
Heads of household: $9,160
Married: $15,290
Single: $16,480
Heads of families: $16,480
Married: $22,610
$560
A Single: $10,980
Heads of families: $10,980
Married: $10,980
Single: $20,130
Heads of household: $20,130
Married: $26,260
Single: $43,492
Heads of household: $43,492
Married: $49,622
$3,733
Of them Single: $15,410
Heads of families: $15,410
Married: $15,410
Single: $20,130
Heads of household: $20,130
Married: $26,260
Single: $49,399
Heads of families: $49,399
Married: $55,529
$6,164
three or more Single: $15,410
Heads of families: $15,410
Married: $15,410
Single: $20,130
Heads of household: $20,130
Married: $26,260
Single: $53,057
Heads of families: $53,057
Married: $59,187
$6,935

taxes 2022

How to claim the earned income tax credit

To claim the EITC, US workers must file a tax return, although this is not normally required. This so-called “standard deduction” income cap for 2021 is $12,550 for single and married filers filing separately, $18,800 for heads of families and $25,100 for married couples filing jointly.

US taxpayers claiming the credit also have some discretion over the filing status they choose. Married but separated filers can claim the credit without filing a joint return with their spouse if they have an eligible child and do not live with their spouse for at least half of the year. They must also be considered legally separated in the state where they live.

New for 2021, U.S. workers who have children without a Social Security number are now eligible for the “childless worker” credit. Previously, these taxpayers were not eligible for the credit.

If you are unsure if you qualify, use the IRS Qualification Wizard tool.

Taxpayers who receive the credit won’t be able to get their refund until at least mid-February of a given tax year, according to the IRS. By law, the agency can’t disburse those funds earlier — along with other family tax credits, such as the child tax credit — to prevent fraud and error.

After that, if you file your taxes electronically and provide the IRS with your direct deposit information, you can expect your refund within 21 days.

Taxpayers also have the option of claiming an earned income credit at the state level, with 28 states and the District of Columbia offering their own state EITC, according to the Urban Institute. By 2023, Missouri, Utah and Washington will also join the list.

Most state credits are based on the percentage you receive in federal earned income credit money, but check with your individual state requirements.

However, changes could be made to the system. Even IRS chief Rettig thinks they are needed. In his March congressional testimony, Rettig spoke to lawmakers about the need to eventually simplify the family tax credit system.

“We urge those potentially eligible for this valuable credit to review the guidelines,” Rettig said in January. “A lot of people overlook this every year and leave money on the table.”

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