Today is National Earned Income Tax Credit Awareness Day! The Earned Income Tax Credit (EITC) is a huge benefit to taxpayers with low to moderate income and has helped lift millions of people out of poverty. To determine if you qualify, make sure you file your federal taxes this year.
According to the IRS, more than 25 million eligible filers received the EITC last year, and the average EITC was approximately $2,476. However, millions of taxpayers are still missing out on this valuable tax credit; the IRS reports that one out of five qualifying filers fails to claim the tax credit.
You may wonder why someone would miss a tax credit worth up to $6,557 for a family with three or more children? Well, many people who qualify for the credit miss out on it because they are newly qualified or choose, perhaps mistakenly, to not file a tax return because their income falls below the IRS income filing limit ($12,200 single, $24,400 married filing jointly).
Want to know more about the EITC? Here are answers to important questions about the tax credit, and information on how you can qualify.
What exactly is the Earned Income Tax Credit?
The EITC is a refundable tax credit given to taxpayers that earn low to moderate income from a job or being self-employed. While it may eliminate the taxes you owe, you may also receive a tax refund for the amount of your credit if the credit is more than the amount of taxes you owe.
Who is eligible to claim the Earned Income Tax Credit?
Generally speaking, you are eligible for the EITC if you meet the income limits included below (all of the following apply):
- You are a U.S. citizen
- You are over the age of 25 or have qualifying children
- You do not file “married filing separately”
- You have earned income from employment. Unemployment income doesn’t count.
- You can qualify if you have income from a home business or provide services
While you can have interest, dividends and other investment earnings, your investment income must be less $3,600 in 2019. But most importantly, you have to file your federal taxes in order to claim this valuable credit.
What are the income limits?
The limits are adjusted each year, and for tax year 2019, your earned income and adjusted gross income must be less than:
- $50,162 ($55,952 married filing jointly) with three or more qualifying children
- $46,703 ($52,493 married filing jointly) with two qualifying children
- $41,094 ($46,884 married filing jointly) with one qualifying child
- $15,570 ($21,370 married filing jointly) with no qualifying children
What is the amount of credit?
Your income and number of qualifying children will determine the actual amount of your credit. For tax year 2019 the maximum credits are as follows:
- $6,557 with three or more qualifying children
- $5,828 with two qualifying children
- $3,526 with one qualifying child
- $529 with no qualifying children
What is a qualifying child?
A child qualifies if he/she meets four tests for age, relationship, residency, and joint return as follows:
- Age: Generally, your child must be under 19, under 24 if they are a full-time student, or any age if permanently and totally disabled.
- Relationship: Your child must be either your son, daughter, foster child, or stepchild (including all of their respective children). Your “qualifying child” can also be your brother, sister, half brother or sister, or stepsister or brother (including all of their respective children).
- Residency: Your child must have lived with you in the U.S. for more than half the year.
- Joint Return: Your child must not have filed a joint return. If they did file a joint return, it should have been because they were filing for a tax refund, not because they were actually required to file.
What if I haven’t filed my taxes for a couple of years and may be eligible for EITC for prior years?
If you haven’t filed your taxes for a few years, this is a good time to file your prior tax returns since you may be eligible for EITC in those prior years. If you are due a tax refund, you have three years from the filing deadline to file your tax return for a tax refund or to claim a credit like the Earned Income Tax Credit. So if you didn’t file your 2016 taxes you have until April 15, 2020 to file to claim EITC. Although the Treasury extended the tax year 2019 tax deadline to July 15, 2020, the deadline to file 2016 tax returns to claim a deduction or credit was not extended past April 15, 2020. The IRS reports close to one billion dollars in unclaimed tax refunds every year, and many taxpayers are surprised to find that some of this money belongs to them in the form of Earned Income Tax Credit when they file previous years’ returns. Prior-year returns have to be mailed in, but TurboTax has previous years tax products so you can file previous years’ taxes.
The Protecting Americans from Tax Hikes (PATH) Act, signed into law in Dec. 2015, requires the IRS to hold tax refunds that include the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until Feb. 15, 2019, no matter what tax preparation method you use. The IRS expects the earliest EITC and ACTC related refunds to be in taxpayer bank accounts or on debit cards in the beginning of March, if they chose e-file with direct deposit and there are no issues with the tax return. The IRS began accepting and processing tax returns when they opened for the season on Jan. 27, 2020 and encourages you to file as soon as possible so you can get closer to your tax refund!
Don’t worry about knowing EITC tax rules when you file your taxes. TurboTax will ask you simple questions about you and will calculate the tax credit if you are eligible based on your answers.