Do you qualify for the Earned Income Tax Credit (EITC)?

January 23, 2022

Read Time: 6 minutes

The Earned Income Tax Credit (EITC) was started in 1975 to help lower-income employees by increasing their after-tax income. While you do not have to have children, it becomes more prevalent, and oftentimes, easier to obtain for folx who do.

The EITC has helped improve the lives and situations of many individuals. It has increased employment which helps stimulate the economy, create jobs, and increases the amount of taxes paid to the government. Houses who received the EITC have higher birth weight, better health, increased performance in child’s school work, and so much more.

Because of the results of the EITC, the program itself is viewed as about 83% self-funded. This means that because the benefits above occur, more taxes are paid in to go towards the EITC for other individuals. It also shows that it is 17% cheaper than most government programs and has decreased overall costs.

(I have obtained this information from a training by Francine J. Lipman, Professor of Law at the University of Nevada; she has also cited Bastian & Jones, February 2020)

President Reagan stated that the EITC is “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress”.

If you qualify for the EITC, it is imperative for you to claim it! Credits are better than deductions and this credit happens to be refundable!

Credits are a dollar for dollar reduction of taxes owed. This means that if you have a $10 credit and a $75 tax, you would end up owing $65 in taxes after the credit was applied.

With the EITC being refundable, any credit that exceeds the taxes owed goes back to the taxpayer. For example, if you qualify for a $1,000 EITC and $400 of that went towards taxes, then you could get $600 refunded to you.

Unfortunately, there is a stupid law in place that says that the IRS is not allowed to start refunding returns with an EITC credit until mid-February. I don’t understand this purpose, but it exists and it’s something to note.

Who Qualifies?

In order to qualify, you need to meet the following basic requirements:

  • Earned income less than 57,414*
  • Investment income less than 10,000
  • US Citizen/Resident alien all year, with valid SSN
  • Didn’t file Form 2555 (relates to foreign earned income).
*Note: 57,414 is the max amount and is applicable for those who are married filing jointly with three or more children. The amount actually changes depending on the number of children and your filing status, see the chart below.

What is Earned Income?

Quick explanation: Earned income refers to income that you received through wages, commissions, sales, etc that you received while working for someone or yourself in a business, farm, freelancing, or something similar.

It does not include more passive income activities; such as, interest income, dividend income, and cryptocurrency income.

No Qualifying Children?

If you don’t have any qualifying children, you have additional requirements

  • Must have had a home in the US for at least half of the year
  • Not be claimed as a dependent on anyone else’s return
  • Be at least 19 years old, 18 if you are a former foster youth or qualified homeless youth, or 24 if you’re a student.

2021 Changes

American Rescue Plan Act of 2021 made a lot of changes to the EITC credit to make it even more beneficial for taxpayers to obtain.

The ARP Act almost tripled the maximum credit available for individuals who do not have children from $543 to $1,502. There were always income thresholds where the taxpayer couldn’t get the maximum EITC allowed, but would receive a portion of it. The income limits for this was increased as well, meaning that folx can earn more money before the EITC starts decreasing.

They also reduced the age a taxpayer needed to be in order to qualify, with the most common situation being a reduction from 25 years old to 19. They also reduced the age for student, former foster youth, and youth experiencing homelessness to 24, 18, and 18 respectively.

Unfortunately, at this time, the changes were only applicable for the 2021 tax year, with filings initially due April 15, 2022. However, sometimes at the end of tax years, Congress decides to extend various tax legislation retroactively. This means that in January 2023, Congress says that these changes have been extended through Dec 31, 2022. It’s confusing, but that’s taxes!

Important Things to note

I want to make sure I touch on a variety of things that will help you if you do end up qualifying for the EITC. If you have an unusual situation, please make sure you reach out to a tax professional or utilize the IRS’s free tax preparation services to get additional assistance!

RecordKeeping

As with everything relating to tax filings, recordkeeping is paramount. Ontop of the normal records that you’d keep for tax preparation, the following are specific to claiming the EITC and having back-up support for that.

  • Keep a copy of the Schedule EIC that was filed with your return as part of your records.

  • Have any documentation to prove the relationship of the qualifying dependent(s).
    • Examples: birth certificates, school records, medical records, legal documents, and/or paternity tests/marriage certificates.

  • Have any documents to prove the residence of the qualifying dependent(s).
    • Examples: school/medical/social service records, daycare records, and/or letter on official letterhead from a variety of folx including: churches, employer, school, and more.
    • It is vital that this proof has your child’s name, your name as the parent/guardian, the address the chld lives – which MUST be the same as yours. The letters require a little bit more, but most people are able to pull proof from school, medical, or daycare records.

  • Use the IRS’s EITC Assistance to get some guidance on if you qualify. This is a short, quick quiz the IRS has put together to help you determine whether you could be able to claim the EITC. Save the results as part of your records. However, be aware that this is guidance and not something to depend on. It’s just an extra bonus!

Common Mistakes

Your child does not qualify.
Your child must meet certain requirements to be considered a qualifying child. You can check out the
IRS’s website to see what they have listed.

Someone else claimed your child.
Generally, this isn’t an issue unless you have joint custody and there is an agreement in place that discusses who can claim the child for tax purposes and who can’t. Sometimes this swaps years too!

Last name and SSN do not match.
This is something that personally has tripped me up! When I got married, I didn’t change my name on my SSN to my married name, so I had to use my maiden name for tax filings.

The name on your tax return MUST match the name on your social security card exactly; same with your children’s names.

You’re married, but filed single or head of household.
The American Rescue Plan Act of 2021 created a special rule for those who file married filing separately. Otherwise, it is not allowed for you to file separately and claim the EITC, which could encourage folx to file single or head of household instead.

Over or Underreporting of income/expenses.
The IRS will receive a copy of a good chunk of documentation. From W2s, 1099-NECs, and 1099-MISC to various investment activity documents as well. This gives the IRS a basic idea of what your income should look like. Of course, this isn’t the ONLY activity you should report, but it will definitely let them know if you forgot something.

Commonly Audited

While I won’t go into extreme detail here because I plan on talking about this in a future post, I can say that a lot of audits by the IRS are over the EITC. That does NOT mean the IRS is correct, it means they are biased, lazy, and trying to get the most “bang” for their buck.

Please know that if you qualify for the EITC, then you should absolutely take advantage of it and make sure it is included on your tax return. Do not let the fear of an IRS notice stop you from receiving the money that is owed to you.

Make sure you maintain a copy of all documents used for recordkeeping together with a copy of your tax return.

Additional Sources

Use the box below to leave any questions, comments, or feedback you have!

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