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FINANCIAL NEWS

What qualifies you for the Earned Income Tax Credit?

The IRS tax return deadline for 2021 filings is on 18 April and there's still time to take advantage of the EITC and recieve a tax credit worth thousands.

Update:
The IRS tax return deadline for 2021 filings is on 18 April and there's still time to take advantage of the EITC and recieve a tax credit worth thousands.

The Earned Income Tax Credit (EITC) is designed to offer support for low- and middle-income households. As a general rule, the credit is larger for filers with lower incomes and the amount on offer is typically the biggest for families with children.

The EITC can be claimed on your tax return to reduce the size of your tax bill or increase the size of any refund you may be owed. However to be eligible for the support you must have:

- Been in work in the past year

- An earned income of less than $57,414

- A valid Social Security number, valid at the due date of your 2021 tax return

- Citizenship in the United States, or resident alien status

- Not filed Form 2555 in relation to foreign earned income

How does the EITC work?

The amount on offer for recipients can vary greatly and the size of your entitlement does not increase for filers who pay more tax, unlike many other tax credits. In fact, it is low-income filers who are most likely to get the biggest payments. This year (2021 tax returns that are being filed in 2022) the Earned Income Tax Credit ranges from $1,502 to $6,728.

The size of your entitlement will be based on your tax-filing status, income and number of children, although filers without children can also qualify. The highest upper income threshold of $57,414 is reserved for households with three or more children where the filer is a couple who submit their taxes jointly.

Read more on the EITC:

Eligibility is based largely on the claimant's earned income, which typically includes any wages, salary, trips and other taxable pay that you receive from your employer. This is different to your adjusted gross income, which allows for certain deductions.

If you think you are eligible you should be sure to include the EITC in your tax filing and get it submitted before the 18 April deadline. This year’s EITC is boosted by a provision in the American Rescue Plan which expanded the credit to offer additional support to low-income Americans during the pandemic.

You should also consider whether or not you might have been eligible to claim the EITC in the past but have not yet received the money. The IRS allows filers to claim up to three years of missed payments if they forgot to claim their entitlement from previous tax years.

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