Earned Income Tax Credit 2022: what is it and how can I apply?
The Earned Income Tax Credit is a refundable tax credit that is targeted at low- and moderate-income workers that could provide extra cash in tax refunds.
Low- and moderate-income workers could get some extra money back from Uncle Sam when filing their 2021 tax returns this year. The Earned Income Tax Credit is a refundable tax credit that is targeted at low- and moderate-income workers.
The value of the credit was enhanced for the 2021 fiscal year, at the same time more people can claim it, but they will need to file a tax return. The Earned Income Tax Credit reduces the amount of taxes filers owe and could even be collected as a refund along with other enhanced tax credits this year.
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Who can claim the Earned Income Tax Credit?
Depending on income, filing status, and dependents, the amount of credits range from $1,502 to $6,728 for the 2021 fiscal year. Workers with kids get a higher starting credit, but new modifications in the American Rescue Plan relaxed some rules and childless workers will be eligible for a much larger credit than before.
The basic requirements to claim the Earned Income Tax Credit (EITC) on a 2021 tax return are that you, or your spouse if filing jointly, must have a valid Social Security number, be a US citizen or a resident alien all year, show proof of earned income and investment income. You, or both spouses for joint returns, must have your main home in the US for more than half the tax year; military bases count but not US possessions. Furthermore, you cannot have foreign earned income.
When filing in 2022 taxpayers can once again choose to use 2019 earnings instead of 2021 to claim the credit. The law passed last year reduced the age threshold for taxpayers with no qualifying dependents from 25 to 19 and eliminates the ceiling at age 64. Only for the 2021 fiscal year, if certain conditions are met with regards to living arrangements and legal agreements, those with the filing status “married filing separately” can claim the credit when they file their 2021 tax return.
What are the income eligibility limits to claim the Earned Income Tax Credit?
Workers wanting to claim the credit must have both earned income and adjusted gross income (AGI) below certain thresholds. The maximum earnings increased for the 2021 fiscal year for individuals or heads of household (HoH) to $21,430 and for joint filers to $27,830. Additionally, the limit of investment income increases to $10,000 from the current $3,650.
In order to check your eligibility, the IRS offers an online EITC Assistant tool that you can use to see if you can claim the credit. As well most tax software used to prepare taxes will walk you through the process and calculate the credit you will receive. The IRS partners with several tax preparers through their Free File program that anyone who earns less than $72,000 can use to do their federal taxes for free.
Additional tax credits for parents to claim in 2022 tax season
Eligible taxpayers can take advantage of thousands of dollars in tax credits if they have children through the 2021 Child Tax Credit, Child and Dependent Care Credit in addition to the Earned Income Tax Credit. Also, those that welcomed a new member to the family in 2021 could potentially see another $1,400 stimulus check.
Eligible parents that didn’t opt out should have already received monthly payments from the enhanced Child Tax Credit for the 2021 fiscal year. But those payments only represented half of the total credit they could be eligible for. The remaining portion of the credit for each child under age 17 can be claimed on 2021 tax returns.
For parents that incur expenses to have their child looked after so that they can go to work, look for work or study, may be able to get up to $8,000 knocked off their tax bill. Even better, the American Rescue Plan made the credit fully refundable in 2021. So, if you owe less in taxes than the amount of the credit you can claim, you’ll see a larger tax refund this year.