What is the earned income tax credit?
The Earned Income Tax Credit (EITC) is the nation's largest program for low- and moderate-income workers. According to the IRS, about 25 million taxpayers received the EITC last year, and the average EITC was about $2,411. However, millions of taxpayers still miss out on this valuable tax credit. According to the IRS, one in five eligible taxpayers does not claim this tax credit.
You might be wondering why someone would miss out on a tax credit of up to $6,728 in 2021 when it comes to a family with three or more children? Well, many people who qualify for it miss out because they're newly eligible or because they choose not to file a tax return at all because their income is below the IRS limit to file such a return (for 2021, it's $12,550 for singles and $25,100 for married filing jointly).
As a result of events that occurred in 2021, you may have experienced lower income and may now qualify for the EITC, even if you were previously ineligible, but to get the credit you need to make sure you file your federal taxes this year.
Do you want to know more about the EITC? Here you will find answers to the most important questions about the tax credit, as well as information on how you can qualify to receive it.
The EITC is a refundable tax credit given to low- and moderate-income taxpayers, whether from employment or self-employment. Although it may only eliminate your income tax liability, you may also receive a tax refund for the amount of the credit, if the credit is more than the amount of tax you owe.
Who can claim the earned income tax credit?
Generally speaking, you may qualify for the EITC if you meet the income limits below and all of these requirements:
You are a US citizen or a resident alien
You have a valid social security number before the due date of your 2021 return (including extensions).
You must meet certain requirements if you are separated from your partner and do not file a joint return You receive income from a job. Unemployment income does not count.
You receive income from a domestic business or the provision of services
You cannot file Form 2555 (Regarding Foreign Earned Income)
You can also have interest, dividends, or other earnings from investments, but their value must be less than $10,000 in 2021. But remember the most important thing: you have to file your federal income tax return in order to claim this valuable credit.
Starting in the tax year 2021 (the taxes you file in 2022), under the American Rescue Plan, the Earned Income Tax Credit (EITC) has been expanded for workers without children and nearly triples the maximum credit. Eligibility is also extended to a broader group of taxpayers, including those who are over the age of 65 or between the ages of 19 and 25.
What are the income limits?
The limits are adjusted each year, and for the tax year 2021, earned income and adjusted gross income must not exceed the following amounts:
$51,464 ($57,414 for married filing jointly) with three or more qualifying children.
$47,915 ($53,865 for married filing jointly) with two qualifying children.
$42,158 ($48,108 for married filing jointly) with a qualifying child.
$ 21,430 ($ 27,380 for married filing jointly) with no qualifying children.
What is the amount of the credit?
Your income and the number of qualifying children will determine the actual amount of the credit. For the tax year 2021, the maximum amounts for credits are as follows:
$6,728 with three or more qualifying children.
$5,980 with two qualifying children.
$3,618 with a qualifying child.
$1,502 with no qualifying children.
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