Earned Income Credit: Learn If You Can Claim Earned Income Credit
You may have heard about Earned Income Credit before, and there may be questions circling around your mind right now. What is earned income credit? Do I qualify for it? How I do claim one? We have compiled answers to these questions as we provide you with Earned Income Credit Crash Sheet.
What is Earned Income Tax Credit?
Earned Income Credit also known as Earned Income Tax Credit (EIC or EITC) is a refundable tax credit for workers with low to moderate income. It is also coined as a “work bonus plan” to supplement the said workers. This year 2021, the income tax credit ranges from $1,502 to $6,728 according to Internal Revenue Service. The amount of tax credits someone can receive depends on income, tax filing status, and the number of children or qualified dependents.
We all know that 2020 has been tough due to the COVID-19 pandemic and taxpayers reported lower income compared to 2019.
How does Earned Income Credit Work?
EIC reduces the value of the tax credit and the liability an eligible taxpayer paid to the Internal Revenue Service. It is one of the most important tax credits available because a taxpayer can have thousands of dollars worth of tax refunds if done right.
Who Qualifies for the Earned Income Tax Credit?
As mentioned before, earned income credit applies only to taxpayers with low to moderate-income which is set at $3650 for 2020. This applies whether they have qualifying dependents or not. According to the Internal Revenue Service, a taxpayer with no qualifying dependent must meet the following criteria to claim the tax credits:
- Must be at least 25 up to 64 years old
- They must live in the US for more than half of the tax year
What is a "Qualifying Child?"
A qualified dependent, as defined by the tax law, is a child who is related to the taxpayer by birth, adoption, or fostering. The child can also be a sibling or the child of a sibling such as a niece or a nephew. For those taxpayers with qualifying dependent (single, married filing, or joint return), they must meet the following criteria:
- Must be a US citizen and must live in the US for the entire year and have a valid Social Security number by the tax return's due date
- Have children 19 years or younger; students aged 24 or younger or children with disability
- The taxpayer must be older than the dependent unless the dependent is permanently disabled
- The child must have lived in the US with you or your spouse for more than half a year
- Qualifying children must be provided on Schedule EIC which is filed with the taxpayer's Form 1040
How Do I Qualify for the EITC?
If you qualify for the EIC, the next question is “how do I qualify?” These are the ways how one can quality and claim this tax credit. As mentioned, taxpayers who are single, opting for married filing or joint returns can claim their tax credits granting they meet the eligibility rules.
What are the EITC Income Limits?
Whether you're single, head of household or married, anyone can apply of tax refunds regardless of the marital status as long as they are eligible taxpayers. The Internal Revenue Service states the following eligibility rules:
- A single filer with no dependents with income less than $15,280 in 2020 is eligible for a maximum tax credit of $538
- A married taxpayer and spouse filing jointly, having two children who are qualifying dependents, can claim up to a maximum credit of $5,920 if the total of the couple's earned income in 2020 is less than $53,330
What is the Maximum EITC Amount Can I Claim?
Again, the maximum tax credits the eligible taxpayers can claim to depend on the size of the family or the number of qualified dependents. Generally, the more qualified dependents you have, the larger tax credit you can file and claim which results in lesser liability paid to the IRS.
For married couples or joint returns, the table below shows maximum credit amounts, income, plus the max a couple can earn before losing the benefit altogether. This applies to tax returns due on April 2021.
Earned Income Tax Credit Amounts
income tax credit
|Max earnings, single or
head of household filers
|Max earnings, joint filers|
|3 or more||$6,660||$50,954||$56,844|
Is the Earned Income Tax Credit Worth It?
It is reported by the IRS that roughly 20% of eligible taxpayers do not claim the tax credit. There is additional paperwork for an eligible taxpayer to claim this tax credit, but it is always worth it to file and claim this benefit. EIC reduces a taxpayer's liability and the amount to be paid to the Internal Revenue Service.
- EIC can be filed by low to moderate-income workers with or without qualifying dependents providing they meet the criteria mentioned above.
- Both single and married taxpayers can file and claim this tax credit, granting they meet the criteria
- The lesser the income, the larger the tax credit you can claim.
We just debunked how earned income credit works, how someone can qualify, the income required, and the amount of earned income tax credit someone can file. It is best to claim it when you do your taxes to fully enjoy the benefits of earned income credit. After all, it's a government-mandated benefit aimed to help us out, and it won't hurt to do so.
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