Tax Refund: More People Qualify for Earned Income Tax Credit (EITC)
The IRS has announced an expansion of the Earned Income Tax Credit (EITC). Enacted in 1975, the EITC provides support to millions of low to moderate-income workers and families and is regarded as one of the federal government's largest antipoverty programs.
The amount a taxpayer receives depends on their income, filing status, and the number of children or dependents. The maximum amount of credit is $6,728 for tax year 2021, and $6,935 for tax year 2022. Workers without children may also qualify for the tax credit.
Who qualifies for the EITC
The EITC is available to U.S. citizens and resident aliens with at least $1 of earned income, excluding pensions or annuities, Social Security or unemployment benefits, and alimony or child support. The IRS estimates that almost 25 million workers and families claimed the EITC in 2020.
Earned income includes all the taxable income and wages you get from self-employment, working for someone else, or from a business you own. This may include:
- Wages, salary, or tips
- Income from a job where your employer didn’t withhold tax (such as gig economy work)
- Money made from self-employment
- Benefits from a union strike
- Certain disability benefits you got before you were the minimum retirement age
- Combat pay
Certain taxpayers potentially eligible for the EITC often overlook this tax credit, including:
- Workers without children
- Non-traditional family arrangements (e.g. grandparent raising a grandchild)
- Native Americans
- Members of the armed forces
- Workers with limited English language skills
- Workers whose earnings declined
- Workers whose marital or parental status changed
- Workers with disabilities or who provide care for a dependent with disabilities
To check if you're eligible for the tax credit, you can use the EITC Assistant on the IRS website.
What's new
One-time expansion for childless taxpayers
The American Rescue Plan expanded the childless EITC for tax year 2021. This means that more childless workers now qualify for the tax credit.
The maximum credit for childless workers also increased nearly threefold, from $543 to $1,502. The maximum adjusted gross income (AGI) was increased for tax year 2021, with single filers with incomes up to $21,430 and joint filers with income up to $27,380 now eligible for the tax credit.
EITC now available to younger workers and senior citizens
The minimum eligibility age for the EITC was lowered from age 25 to 19 for most workers, to 24 for students attending school at least half-time, and to 18 for workers who were formerly in foster care or are currently homeless. The age restriction on filers ages 65 and older was also removed, allowing senior citizens to claim the credit for the first time.
Use income from 2019
Another change for tax year 2021 is allowing individuals to use their 2019 earned income to calculate their EITC if the figure is higher than their 2021 earned income. Taxpayers must have earned income to qualify for the EITC, so this option may help them retain or get a larger credit if their earnings declined in 2021 or received unemployment benefits instead of their regular wages.
Higher income and credit limits
For tax year 2021, the maximum EITC for taxpayers with no qualifying children is $1,502, with an income limit of $21,430 for single filers and $27,380 for married couples filing jointly.
The maximum EITC for taxpayers with one qualifying child is $3,618, with an income limit of $42,158 for single filers and $48,108 for married couples filing jointly.
The maximum EITC for taxpayers with two qualifying children is $5,980, with an income limit of $47,915 for single filers and $53,865 for married couples filing jointly.
The maximum EITC for taxpayers with three qualifying children is $6,728, with an income limit of $51,464 for single filers and $57,414 for married couples filing jointly.
Please note that Economic Impact Payments (also known as stimulus checks) or Child Tax Credit payments are not considered as earned income for purposes of claiming the EITC.
Changes beyond 2021
The investment income limit has been increased, allowing more workers and working families to qualify for the credit. Starting tax year 2021, the investment income limit is increased to $10,000, compared to $3,650 for tax year 2020. After tax year, 2021, the $10,000 limit is then adjusted for inflation.
Couples who are married but separated can choose to be treated as single for EITC purposes. Under this new rule, the spouse claiming the tax credit must not file jointly with their other spouse. The claimant must also have a qualifying child living with them for at least six months a year and live separately from their other spouse.
Single workers and couples with children who have Social Security numbers are now eligible for the EITC, even if the qualifying children do not have valid Social Security numbers. In this case, the claimant would receive the smaller figure available to childless workers.
When to expect your EITC refund
Don't be surprised if you haven't received any or all of your tax refund. Due to a law passed in 2015, the IRS cannot issue credits and refunds before 15 February for tax returns that claim the EITC or the Additional Child Tax Credit (ACTC). This affects your entire refund, including the Recovery Rebate Credit.
This small delay gives the agency more time to process your return and check for errors or fraud. If there are no issues with your tax return, you can expect your EITC refund by the first week of March.
How to Claim the EITC
You must file a tax return in order to qualify for the EITC. The IRS began accepting tax returns for tax year 2021 on 24 January 2022. Make sure to file a tax return even if your earnings are below the minimum income requirement for filing.
The EITC provides a substantial tax break that can help pay for childcare, education, and basic necessities. If you fall within the income and filing guidelines, be sure to claim the credit when you file your tax return.
It's important that you double-check your tax return for any errors before submission. A single mistake can delay your refund or even cause the IRS to deny your claim.