Most people think of the IRS as the agency that collects taxes, but you may not know that every year, our agency distributes billions of dollars in tax credits to eligible individuals, families and businesses. The IRS has been especially busy in the past year and a half issuing credits like advance payments of the Child Tax Credit and credits to businesses for retaining employees during the pandemic. Currently, the IRS wants to make sure that people know about the Earned Income Tax Credit, or EITC, one of the federal government’s largest refundable tax credits for low- to moderate-income families, which can be claimed when filing your tax return. While most eligible people claim the EITC every year, one in five eligible taxpayers don’t claim the credit and miss out on collecting money they’re entitled to that could come in handy during the pandemic. The key is that those who qualify for the EITC must file a tax return to claim the credit.
This year, due to changes that apply to the 2021 tax year, the EITC is worth as much as $6,728 for a family with three or more children or up to $1,502 for taxpayers who do not have a qualifying child. For those who qualify, if the credit is larger than the amount of tax they owe, they will receive a refund for the difference. Also, it’s very important to note that any Economic Impact Payments received are not taxable or counted as income for purposes of claiming the EITC.
The IRS recently held its annual EITC Awareness Day to promote this important tax credit. This week, I’d like to give you a closer look at the EITC and recent changes to make sure everyone knows how to find out if they’re eligible for the credit this year, how to get it, and when to expect it.
What is the EITC?
The EITC is a federal tax credit that offers American workers and families a financial boost. The EITC has been benefitting low- and moderate-income workers for 46 years and many working families receive more money through EITC than they pay in federal income tax. While it has been modified several times over the years, the vast majority of the benefits of the program go to families with children.
Here are the basic eligibility requirements to claim the EITC on a 2021 tax return:
- You must have worked and earned income under $51,464 ($57,414 if married filing jointly)
- Your investment income was $10,000 or less during tax year 2021
- You had a valid Social Security number by the due date of your 2021 return (including extensions)
- You must have been a U.S. citizen or a resident alien all year
- You did not file Form 2555 (related to foreign earned income)
For 2021, to qualify for the EITC, you can use one of the following statuses:
- Married filing jointly
- Head of household
- Qualifying widow or widower
- Single
- Married filing separate
You can find more information on eligibility, rules for qualifying children, and filing status, including special qualifying rules and considerations for married people not filing joint returns due to separation or living apart, by visiting the Earned Income Tax Credit page on IRS.gov.
How to claim the EITC
The only way to receive the EITC is by filing a tax return and claiming the credit. So even if someone doesn’t earn enough income to require them to file a tax return, if they qualify for the EITC, they must file a return to claim the credit. The good news is that free tax preparation including electronic filing is available online and through volunteer organizations, with three options:
- Free File on IRS.gov. Free brand-name tax software is available to anyone who earned $73,000 or less in 2021. Available only at IRS.gov, each partner’s software uses a question-and-answer format to prepare the tax return and help people claim credits and deductions if they’re eligible. Free File also provides online versions of IRS paper forms, an option called Free File Fillable Forms, best suited for taxpayers comfortable preparing their own returns.
- Free tax preparation sites. Those eligible for the EITC can get free tax preparation and electronic filing at thousands of Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites. To locate the nearest site, use the search tool on IRS.gov, the IRS2go smartphone application, or call toll-free 800-906-9887. Taxpayers should bring all required documents and information.
- A trusted tax professional. Find a trusted tax professional who can prepare a tax return and provide helpful information and advice. Tips for choosing a return preparer, including certified public accountants, enrolled agents, attorneys and many others who don’t have a professional credential, and details about national tax professional groups are available on IRS.gov. EITC recipients should be careful not to be duped by an unscrupulous return preparer.
- Single
- Married filing separate
New changes expanded the credit to more people for 2021
There are important changes for the EITC that will help more hard-working families receive the credit this year. Here’s a quick overview of what’s new for this filing season:
Childless EITC expanded for 2021. For 2021 only, more childless workers and couples can qualify for the EITC, and the maximum credit is nearly tripled for these taxpayers. For the first time, the credit is now available to both younger workers and senior citizens.
For 2021, the EITC is generally available to filers without qualifying children who are at least 19 years old with earned income below $21,430, and $27,380 for spouses filing a joint return. The maximum EITC for filers with no qualifying children is $1,502, up from $538 in 2020. There are also special exceptions for people who are 18 years old and were formerly in foster care or are experiencing homelessness. Full-time students under age 24 don’t qualify, but now, there’s no upper age limit for claiming the credit if taxpayers have earned income. In the past, the EITC for those with no dependents was only available to people ages 25 to 64.
Income from 2019. Another change for 2021 allows individuals to figure the EITC using their 2019 earned income if it was higher than their 2021 earned income. To qualify for the EITC, people must have earned income through employment or other sources, so this option may help workers get a larger credit if they earned less in 2021 or received unemployment income instead of their regular wages. See the instructions for Form 1040 (.pdf) PDF, line 27 c.
Phase-out and credit limits. For 2021, the amount of the credit has been increased and the phaseout income limits at which taxpayers can claim the credit have been expanded. For instance, the maximum EITC for a married couple filing jointly with three or more children is $6,728 and the upper-income level for that same family is $57,414. In 2020, the maximum EITC for a family in that situation was $6,660 and the upper-income level was $56,844.
Investment Income. More workers and working families who also have investment income can get the credit. Starting in 2021, the amount of investment income they can receive and still be eligible for the EITC increases to $10,000. In 2020, the limit was $3,650. After 2021, the $10,000 limit will be indexed for inflation.
Married but Separated Spouses. Those who are married but separated 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, cannot have the same principal residence as the other spouse for at least six months out of the year, and must have a qualifying child living with them for more than half the year. They also must be legally separated according to their state law under a written separation agreement or a decree of separate maintenance and not live in the same household as their spouse at the end of the tax year for which the EITC is being claimed. In the past, married taxpayers had to file with their spouses to claim the EITC.
Some other key points:
- Taxpayers should file Schedule EIC (Form 1040) and check the box showing them as married filing separately with a qualifying child.
- Single people and couples 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.
- Taxpayers should file Schedule EIC (Form 1040) if they have a qualifying child. If they have at least one child who meets the conditions to be their qualifying child for purposes of claiming the EITC, they should complete and attach Schedule EIC to their Form 1040 or 1040-SR even if that child doesn’t have a valid SSN. For more information, including how to complete Schedule EIC if your qualifying child doesn’t have a valid SSN, see the instructions for Form 1040 PDF, line 27a, and Schedule EIC.
When to expect your EITC payment
By law, the IRS cannot issue refunds before mid-February for tax returns that claim the EITC or the Additional Child Tax Credit (ACTC). The IRS must hold the entire refund − even the portion not associated with the EITC or ACTC and the Recovery Rebate Credit if applicable. This helps ensure taxpayers receive the refund they deserve and gives the agency more time to detect and prevent errors and fraud.
To give you a better idea of when you can expect your payment after you file, we will be updating the ‘Where’s My Refund?‘ tool on IRS.gov and the free IRS2Go app with projected deposit dates for most early EITC/ACTC refund filers by February 19. We expect most EITC or ACTC related refunds for early filers to be available in bank accounts or on debit cards by March 1 for those who chose direct deposit and had no issues with their tax return. Those who file later in filing season can check the previously mentioned tools to track their payment.
I also want to reinforce that anyone who has questions about the EITC or related credits should go to IRS.gov first to get the help they need. They are experiencing extremely high call volumes this year, just like last year, so a phone call may take much longer than getting information online or on our IRS2Go app.
The IRS employees are proud of the work they do to facilitate tax refunds and credit payments to taxpayers and working families. It is a great feeling to know our hard work results in people getting the money they are eligible for, and we’re committed to getting the job done as quickly as we can, even with current constraints related to the pandemic.
