At tax time, most of us have an identical objective: decrease our legal responsibility, and perhaps even get some a reimbursement within the course of. The Earned Income Tax Credit, or EITC, is a tax incentive which may be capable of assist.
You might be eligible for the EITC if you happen to earned a comparatively low earnings within the earlier tax yr — particularly in case you have youngsters. On this article, we’ll discover precisely tips on how to qualify, how a lot credit score you will get, and tips on how to declare it in your tax return. Then we’ll comply with up with some regularly requested questions in regards to the Earned Earnings Tax Credit score.
What Is Earned Earnings Tax Credit score?
The Earned Earnings Tax Credit score (EITC) is a refundable tax credit score obtainable for low- to moderate-income people and households — particularly these with youngsters. The EITC is claimed whenever you file your tax return. The utmost quantity obtainable for 2021 taxes is $6,728, although the quantity of credit score you’ll obtain will depend on earnings, submitting standing, and what number of qualifying youngsters you’ve got.
The EITC is a credit score, not a deduction, which suggests it instantly reduces the tax {dollars} you owe. A deduction, however, reduces how a lot of your earnings is topic to taxation. In follow, this implies it’s even higher than a tax deduction generally, and will considerably decrease your tax legal responsibility or get you a much bigger refund.
Who Qualifies for the Earned Earnings Tax Credit score?
The essential qualification for the EITC is easy, however as with all issues IRS, there are many nitty-gritty specifics that may make or break your eligibility. The primary requirement is true there within the title: you need to have earned earnings. You’ll additionally have to:
- Have a Social Safety quantity.
- Have been a U.S. citizen or resident alien for the whole thing of the tax yr in query.
- Be a minimum of 25 years outdated, however not over 65.
Should you don’t have youngsters, you might be eligible primarily based solely on a low earnings. Within the 2021 tax yr, you’ll have to have earned an adjusted gross earnings, or AGI, of:
- Lower than $21,430 as a single filer.
- Lower than $27,380 for married {couples} submitting collectively.
In any other case, the earnings limits rely upon the variety of youngsters you’ve got — and the youngsters should meet all {qualifications}, which embody age and residency necessities, and a Social Safety variety of their very own.
2021 Earnings Limits for Earned Earnings Tax Credit score
Variety of Kids | Single or Head of Family | Married Submitting Collectively | ||
---|---|---|---|---|
No qualifying youngsters | $21,430 | $27,380 | ||
1 qualifying youngster | $42,158 | $48,108 | ||
2 qualifying youngster | $47,915 | $53,865 | ||
3+ qualifying youngster | $51,464 | $57,414 |
Moreover, there are some special rules for army and clergy members, as properly those that earn choose forms of disabilities benefits. Should you fall into certainly one of these classes, positively take a look at the hyperlinks — these guidelines will provide help to decide whether or not sure monies may be claimed as earned earnings and utilized towards eligibility credit score.
How A lot Can You Get From the Earned Earnings Tax Credit score?
Though people with out youngsters have all the time certified for a small earned earnings credit score, it’s sometimes been a lot lower than what’s provided for these with youngsters. The 2021 tax yr is completely different in that this quantity has been elevated dramatically to assist with COVID-19 reduction.
Most EITC Based mostly on Variety of Kids
Variety of Kids | Most EITC Quantity | |||
---|---|---|---|---|
0 | $1,502 | |||
1 | $3,618 | |||
2 | $5,980 | |||
3+ | $6,728 |
The quantity of credit score being provided to people and households with no youngsters goes again down for the 2022 tax yr. The American Rescue Plan Act, which was designed to assist alleviate the burden imposed by COVID-19, quickly elevated the EITC for these with out youngsters, however this improve will not carry over to the 2022 tax yr (as of the time of this writing).
The way to Get the Earned Earnings Tax Credit score
Should you’re eligible for the Earned Earnings Tax Credit score and able to see its impact in your return, the very first thing you might want to do is to file a tax return. You’ll want to do that even if you happen to don’t owe any taxes or aren’t in any other case required to file — there’s no different solution to declare the credit score.
You should utilize U.S. tax varieties 1040 or 1040-SR to assert the Earned Earnings Tax Credit score if you happen to don’t have qualifying youngsters, however if you happen to do have youngsters, you’ll want to incorporate Schedule EITC along with your 1040. You may also collect all of the necessary documentation and have a tax skilled do the paperwork for you, or make the most of the IRS online Free File software.
Steadily Requested Questions (FAQs) in regards to the Earned Earnings Tax Credit score
You’ve received questions in regards to the Earned Earnings Tax Credit score, don’t fear — we’ve received solutions.
What’s the Earned Earnings Tax Credit score and How Does it Work?
The Earned Earnings Tax Credit score (EITC) is a credit score provided to people and households that earned a low earnings in the course of the earlier tax yr. The quantity of credit score provided is set by your submitting standing (single or married submitting collectively) and the variety of youngsters you’ve got — usually, the extra youngsters you’ve got, the bigger the credit score you’ll be eligible for.
What’s an Instance of Earned Earnings Tax Credit score?
For the reason that EITC is a credit score, slightly than a deduction, it comes instantly off your tax legal responsibility. In different phrases, if you’re getting again $2,000 and get an Earned Earnings Tax Credit score of $2,000, you’ll obtain a complete refund of $4,000.
What are the {Qualifications} for Earned Earnings Credit score?
To qualify for the EITC for the 2021 tax yr, you need to:
You may qualify for the EITC utilizing any of the next tax submitting statuses:
What Disqualifies You from Earned Earnings Credit score?
A number of issues can disqualify you from receiving EITC, together with:
There could also be different disqualifying elements. Should you’re unsure whether or not you qualify, it’s finest to seek the advice of with a tax skilled. The IRS has a Qualification Assistant software to assist decide your eligibility.
PNW contributor Dave Schafer has been writing professionally for practically a decade, masking matters starting from private finance to software program and client tech. Reporting by Jamie Cattanach is included on this story.