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Earned Income Tax Credit: Are You Eligible?

The Earned Income Tax Credit (EITC) can give taxpayers with low-to-moderate income a substantial financial boost. According to the Internal Revenue Service (IRS), the average credit amount was $2,476 in 2019. If you are eligible to take the EITC, you should file a tax return even if you do not owe taxes or aren’t required to submit one. Why? The EITC not only reduces the amount of tax you may owe, but may result in a tax refund. There are, however, certain requirements you must meet to receive this tax credit.

Earned Income Tax Credit Eligibility

In general, you must meet the following qualifications to claim the Earned Income Tax Credit on your 2020 tax return:

  • Show proof of earned income
  • Have $3.650 or less in investment income
  • Be a U.S. citizen or resident alien all year
  • Have a valid Social Security number (SSN)

For the EITC, the IRS will not accept Social Security cards that have the words, “Not Valid for Employment,” on them. Individual taxpayer identification numbers (ITIN) or adoption taxpayer identification numbers (ATIN) are also not accepted. Your filing status must be single, head of household (HOH), widow(er), or married filing jointly. If you use married filing separately status, you are typically not eligible to claim the EITC.

Exceptions for Separated Married Taxpayers

The IRS does grant exceptions to eligible separated spouses which allows them to file as head of household or married filing separately and still claim the EITC. There are, however, a lot of hoops to jump through. Under the American Rescue Plan Act (ARPA) the process is simpler and allows more taxpayers to claim the credit. Beginning in 2022 (2021 tax season), you’ll be able to claim the EITC if either of the following is true:

  1. You have not lived with your spouse for the last six months of the year; or
  2. You have a separation agreement or court decree, and do not live in the same house at the end of the year.

Additional Requirements for Those Without Children

If you are claiming the EITC and do not have any children, you must meet all of the following additional requirements:

  • Your main home is in the U.S. for more than 6 months of the year
  • You cannot be claimed as a dependent/qualifying child on another taxpayer’s return
  • You are between the ages of 25 and 64 by the end of the tax year (December 31)

If your home is located in the 50 states, District of Columbia, or a military base, it qualifies as a U.S. home. Those located in the Virgin Islands, Guam, Puerto Rico, and other U.S. possessions do not qualify. 

Additionally, if you file Form 2555, Foreign Earned Income, you may not take the EITC.

Nonresident Alien – Married Filing Jointly

Under certain conditions, a nonresident alien may qualify for the EITC if their filing status is married filing jointly, and their spouse is a U.S. citizen or resident alien with a valid SSN. If the spouse is a resident alien, they must also reside in the U.S. for at least six months of the tax year in which they are filing to receive the credit.

There are also special EITC rules for military and clergy members, as well as taxpayers with disabled relatives.

Who is Considered a Qualifying Child?

To be eligible as a qualifying child under the Earned Income Tax Credit, children or relatives must meet the following tests:

Age

  • Any age and permanently/totally disabled (learn more here)
  • 18 and younger at the end of the year, and younger than you or your spouse (if filing jointly)
  • Under age 24 and a full-time student (5 months or more during the year), and younger than you or your spouse (if you file jointly)

Students who attend primary, secondary, and post-secondary schools are eligible. Those attending a trade or technical school are also eligible. Students enrolled in on-the-job training, as well as correspondence, and 100% online schools are ineligible.

Relationship

  • Son, daughter, stepchild, adopted child, or foster child
  • Siblings, including step-siblings and half-siblings
  • Niece, nephew, grandchild

Residency

The qualifying child must live in the same U.S. home as you for at least half of the tax year. A child who was born or died during the tax year, but lived with you for at least six months, is eligible under EITC. In certain cases, a child who temporarily lives away from home may also qualify, such as those who aren’t at home due to:

  • Illness or hospitalization
  • Military service
  • School attendance
  • Juvenile detention
  • Business or vacation
  • Kidnapping

Additionally, if your child files jointly with another taxpayer and claims any tax credits, such as EITC, you cannot claim them. If, however, they file jointly only to receive taxes withheld from a paycheck, they may still be considered a qualifying child.

EITC Maximum Income Levels

To claim the Earned Income Tax Credit, you must have earned income (at least $1) and meet certain adjusted gross income (AGI) limits. Earned income typically includes wages, salary, and tips, as well as income from gig work or self-employment. It does not include pensions and annuities, interest, dividends, unemployment benefits, Social Security, alimony, or child support.

For the 2020 tax year, the maximum allowed income levels per filing status are as follows:

earned income tax credit income levels

Next year, the maximum income levels will increase to the following amounts:

EITC 2021 income levels

Please note that your investment income must be $3,650 or less to claim the 2020 tax credit. Next year, you may have up to $10,000 in investment income. After the 2021 tax year, this amount will be adjusted annually for inflation.

2020 Maximum EITC Allowed

The amount you receive for the Earned Income Tax Credit is based on your income, filing status, and the number of children you claim.

For the 2020 tax season, the maximum tax credit amounts are as follows:

  • No children/relatives: $538
  • 1 child/relative: $3,584
  • 2 children/relatives: $5,920
  • 3 or more children/relatives: $6,660

Keep in mind that only one person may claim the qualifying child on their 2020 tax return (unless married filing jointly) and receive the credit, even if both are eligible to do so.

EITC Changes for Next Year

Under the ARPA, there are several temporary changes to the Earned Income Tax Credit for the 2021 tax year. The minimum eligibility age is now 19 (previously it was 25), and the upper age limit was removed.

For taxpayers with no qualifying children or relatives, the maximum credit will nearly triple, going from $543 to $1,502. Additionally, you may choose to use either your 2019 or 2021 earned income to calculate your credit.

Previously, if you did not have a Social Security number for your qualifying child you could not receive the EITC at all. For the 2021 tax season and beyond, this rule will no longer exist. That means you may receive the tax credit for someone with no qualifying children if you are unable to provide sufficient identification.

Take the EITC Eligibility Test!

If all this information is a bit much to process, don’t stress out. You can easily find out if you are eligible to take the Earned Income Tax Credit and the estimated amount you may receive by using the free EITC Assistant tool provided by the IRS.