Do I qualify for the Earned Income Credit?

 

Editor’s note: This article has been updated to reflect updates to the Earned Income Credit from the American Rescue Plan Act of 2021.

The Earned Income Credit (EIC), otherwise known as Earned Income Tax Credit (EITC) is a valuable credit for low-income taxpayers who work and earn an income of a certain amount.

This credit is highly valuable and is often missed—allowing you to keep more of your hard-earned money.

Good news for your 2020 and 2021 tax returns

A special “lookback” rule in the Dec. 2020 stimulus bill lets taxpayers claim this valuable credit – even if your income was higher in 2020 and 2021.

If your 2019 earned income is higher than your 2020 earned income, and results in a higher credit, the lookback allows you to use 2019 earned income to calculate the 2020 earned income credit.

Taxpayers can use their 2019 earned income to calculate their credit for tax year 2021 if your earned income in 2021 is less than it was in 2019 and using the lookback results in a higher credit. This bears no effect on your calculation of gross income. The IRS will have math error authority to correct an error if one is made under this section.  

If you qualify for this tax credit, you can reduce your taxes and increase your tax refund. The credit ranges from a few hundred to thousands of dollars depending on your tax filing status and quantity of qualifying children.

But it can be difficult to understand the rules surrounding this underutilized tax credit, which is why some people shy away from this credit.  Read on to learn more about what it is, why it’s beneficial, and how to qualify for the Earned Income Credit.


How much is the Earned Income Tax Credit worth?

Taking the time to check the Earned Income Credit eligibility can pay off, as the tax benefit can be worth up to $6,660 depending on your:

  • Filing status
  • Income
  • Number of qualifying children who can’t be claimed by another taxpayer

(Keep in mind: The Earned Income Credit is refundable, so you can receive the credit as part of your refund.)

What exactly qualifies as earned income?

Earned income includes:

earned income credit
  • Long-term disability benefits
  • Net earnings from self-employment
  • Non-taxable combat pay
  • Salary
  • Tips
  • Union strike benefits
  • Wages

What sources of income doesn’t qualify?

  • Passive income, or income you aren’t actively generating on your own, like interest and dividends
  • Pay you get while incarcerated, retirement income, Social Security, unemployment benefits and alimony
  • Child support

Earned Income Credit eligibility

You’re probably wondering how to qualify for the Earned Income Tax Credit.

Here’s more information about the Earned Income Credit eligibility.

Earned Income Credit eligibility includes the following:

  • You and your spouse (if filing jointly) must have valid Social Security numbers (SSN) by the due date of your tax return (including extensions)
  • You can’t file as married filing separately (MFS)
  • You must be a U.S. citizen or resident alien all year
  • You can’t file a Form 2555
  • Starting in 2021, you must have investment income of $10,000 or less (previously, it was $3,650)
  • You can’t be a dependent or qualifying child of another person for EIC purposes
  • You must have earned income less than the AGI limit for your filing status and number of qualifying children 

Earned Income Tax Credit eligibility if you have no children

If you don’t have qualifying children, Earned Income Tax Credit eligibility is as follows:

  • You must not be a dependent of another taxpayer.
  • You must not be a qualifying child of another taxpayer.
  • You must live in the United States for more than half the year.

Childless taxpayers have no maximum age limit for tax year 2021. (Previously it was 65.) Additionally, the minimum age to qualify is 19 years (previously it was 25).  

The Earned Income Credit income limit

Taxpayers, take note of the tax year 2021 childless EIC increase.

For tax year 2021 only, the amount of the credit increases for eligible taxpayers with no qualifying children as part of the American Rescue Plan Act. Additionally, eligibility for the credit is expanded to higher-income taxpayers. 

To qualify for the earned income credit prior to if you don’t have a qualifying child in for your 2021 tax return, here are the new limits:

  • The childless earned income amount for tax year 2021 is $9,820 (up from $4,220).
  • The childless phaseout for tax year 2021 is $11,610 (up from $8,880). 
  • The phase-in and phaseout rates also doubled, and for tax year 2021 is 15.3% (up from 7.65%).  

Qualified foster youth and homeless youth aged 18-24 can now claim the credit even if they were students. 

Earned Income Credit qualifications with one or more children

Earned Income Credit qualifications with one or more children are as follows:

Age —

Your child is under the age of 19 or a full-time student under the age of 24, and is younger than you (and your spouse, if filing jointly). (If your child is permanently and totally disabled, the age requirements don’t apply.)

Relationship —

A qualifying child must be:

  • A son, daughter, stepson, stepdaughter, or eligible foster child
  • A brother, sister, stepbrother, stepsister, half-brother, or half-sister
  • A descendant of any of those people (for example, a grandchild, niece or nephew)

These rules also apply to relationships:

  • Relationships established by marriage aren’t ended by death or divorce.
  • An adopted child is treated as your own child. An adopted child is any child legally placed with you for legal adoption.

Residency —

The child must live with you in the same main home within the U.S. for more than half of the year. This doesn’t include Puerto Rico or other U.S. territories or possessions.

Exceptions are allowed for:

  • Temporary absences
  • Children born or deceased during the year (if your home was the child’s home for over half of the time they were alive)
  • Kidnapped children
  • Those who are on extended active duty outside of the United States. They can be treated as having a main home within the United States. Extended active duty equals more than 90 days or for an indefinite period.

Citizenship —

A qualifying child must be a U.S. citizen, U.S. national, or a U.S. resident.

A child who’s a resident of Canada or Mexico doesn’t qualify.

Qualifying child and dependency requirement —

Your qualifying child can’t be used by more than one person to claim the EIC. You can’t be a qualifying child of another person. You don’t have to claim the child as a dependent. However, a married child is only a qualifying child for EIC purposes if you could claim the child as a dependent.

Marital status —

A qualifying child must not file a joint return unless both conditions are true:

  • They only file a return to claim a refund
  • No tax liability would exist for either spouse if separate returns were filed

EIC for separated spouses 

Separated spouses, those with filing status of married filing separately, are now allowed to claim the EITC if: 

They live with a qualifying child for more than half the year, and either  

  • Don’t have the same principal place of abode as their spouse for the last six months of the year, or  
  • Have a decree, instrument, or agreement (i.e., other than a divorce decree) and do not live with their spouse at the end of the year.

Social Security number (SSN) requirement —

You can to claim the “childless” EIC even if your dependent doesn’t have a valid Social Security number for tax year 2021 and beyond. Previously, if you had a child who didn’t have an SSN, you couldn’t claim any EIC.

Filing status —

You can’t be married filing separately.

Earned income —

You must have earned income to meet the qualifications for the Earned Income Credit. Unearned income (interest, sale of investments, pensions, and unemployment) doesn’t qualify for the credit. If you’re a military taxpayer with nontaxable combat pay, you can include the combat pay in income to calculate the EIC .

The Earned Income Credit income limits for those with one or more children

Your earned income and AGI must be less than these limits:

  • With one qualifying child: $41,756, or $47,646 if married filing jointly
  • With two qualifying children: $47,440, or $53,330 if married filing jointly
  • With three or more qualifying children: $50,954, or $56,844 if married filing jointly

Investment income limit —

The investment income amount limit is $10,000, adjusted for inflation annually beginning in tax year 2021. (For 2020, you can only claim the EIC if your investment income is $3,650 or less.) Investment income includes:

  • Interest
  • Dividends
  • Capital gains
  • Royalties
  • Rental income
  • Passive activity income

Filing state tax returns

If you have to file one or two state tax returns, note that the Earned Income Credit is only calculated on your federal return. Some states offer their own version of the credit, which may be based on the federal amount or calculated separately. See the instructions for the state you’re filing.

If you didn’t claim the EIC last year, can you amend your return and claim it?

To claim the Earned Income Credit for last year, you must amend your return by filing tax Form 1040X by the later of these dates:

  • Within three years from the due date of your original return
  • Within two years from the date you paid the tax

Returns filed before the due date — without regard to extensions, such as tax Form 1040 or Form 1040X — are considered filed on the due date. Note that if you now have a valid SSN but didn’t claim the EIC last year because you or your child had an ITIN, you may not go back and amend your return to claim the EIC for earlier years.

What if you have an EIC error?

An error when filling out the EIC portion of your return could delay your full refund. If the IRS denies your whole claim:

  • Must pay back EIC amount you’ve been paid in error, plus interest
  • Need to file Form 8862, “Information to Claim Earned Income Credit After Disallowance” before you can reclaim the credit if the credit was denied or reduced for any reason other than a math or clerical error

EITC filers facing refund delays should file as they normally would

Taxpayers who claim the EIC could have their refunds delayed until mid-February.

Taxpayers should file as they normally would, even if they expect their refund will be delayed. The IRS still expects to issue most refunds in less than 21 days.

More help with the Earned Income Credit

If you’re looking for more hands-on guidance with claiming the Earned Income Credit, H&R Block can help. Whether you make an appointment with one of our knowledgeable tax pros or choose one of our online tax filing products, you can count on H&R Block to help you get back the most money possible.

You can also check out our Coronavirus Tax Resource Center for up-to-date information on the tax impacts of the pandemic.

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