The Earned Income Tax Credit (EITC) was enacted back in 1975 to assist low- and moderate-income workers by lowering a taxpayer’s tax liability, sometimes resulting in a refund that is bigger than the amount of federal taxes withheld. Despite what a great financial boost it is, the IRS estimates that about 20% of eligible working taxpayers do not claim the EITC because they don’t know about it. And that’s too bad, especially now, when for the first time, the credit is now available to both younger workers and senior citizens.
A tax credit like EITC is even better than a tax deduction because it’s a dollar-for-dollar tax liability reduction, not a reduction of taxable income. For a worker in the 22% marginal tax bracket, a deduction means 22 cents less in tax where a credit means $1 less in taxes. Even better, the EITC is a refundable credit, meaning that the refund can be even more than the amount of income tax that was withheld or paid for the year.
Five tips to determine if you’re eligible for the EITC:
- Single and married taxpayers with children who have Social Security numbers can claim the credit, even if their children do not have SSNs. In this instance, they would get the smaller credit available to childless workers. In the past, these filers didn’t qualify for the credit at all.
- For 2021, workers may choose to use her or his 2019 earned income to figure the EITC if the 2019 earned income is more than the 2021 earned income. This opportunity to get a higher EITC is part of the Taxpayer Certainty and Disaster Relief Act of 2020.
- For 2021, the EITC is available to more filers without qualifying children, including those who are at least 19 years old with earned income below $21,430. The maximum EITC for filers with no qualifying children is $1,502, up from $538 in 2020.
- Workers and working families who have investment income can qualify for the credit. Starting in 2021, the amount of investment income they can receive and still be eligible for the EITC increases to $10,000.
- Married but separated spouses can choose to be treated as not married for EITC purposes. To qualify, the spouse claiming the credit cannot file jointly with the other spouse and must have a qualifying child living with them for more than half the year.
The EITC is now available to more taxpayers, including more people without dependent children. Don’t leave this valuable tax benefit on the table! Check to see if you qualify for EITC when you prepare your 2021 income taxes. Learn the details, rules, and exceptions at