EITC

By Mark Castro, CPA
February 1, 2022

Reminder – Delay of Release of Refunds for Federal Tax Returns that Claim EITC or Additional Child Tax Credit

By law, any refunds on federal tax returns that claim EITC and/or the Additional Child Tax Credit will not be released until mid-February. These refunds will be released beginning on February 15, 2022 and should be in taxpayers’ accounts by the first week of March, provided there are no other issues with the return.

Information concerning projected deposit dates will not begin to appear on “Where’s My Refund?” until February 19, 2022.

Refunds will not be delayed if the return is claiming the new refundable child tax credit and is NOT claiming EITC.

For more details, see IRS News Release (IR-2022-20) of January 28, 2022 under the “Look for EITC Refunds by early March if no issues with tax return” section.

2021 Earned Income Tax Credit Changes

The American Rescue Plan Act included some permanent and temporary changes to how the earned income tax credit is calculated for 2021.

Permanent Changes to EITC

The following changes that apply to all eligible individuals have been made permanent:

• The amount of investment income that an individual can receive and still be eligible for EITC has been increased to $10,000.
• Taxpayers who have children who do not have an SSN will now be eligible to claim the EITC using the rules for individuals with no qualifying children.
• Allow married taxpayers who file a Married Filing Separate return to qualify if they live with their qualifying child for more than half the year and either:
• Do not have the same principal home as the other spouse for at least the last six months of 2021, or
• Are legally separated according to their state law under a written separation agreement or a decree of separate maintenance and do not live in the same household as their spouse at the end of 2021.

Prior Year Earned Income Election

For 2021, a taxpayer may elect to use their 2019 earned income if it is greater than their 2021 earned income when calculating the EITC on their 2021 federal tax return.

EITC for Individuals with no Qualifying Children

For 2021, the new legislation expands both the eligibility for and the amount of earned income tax credit for taxpayers without qualifying children by modifying the eligibility age and the credit formula. These changes are:

• The minimum age for individuals to qualify for EITC is lowered to 19
• The minimum age for students attending school at least part-time is 24
• The minimum age for former foster youth or qualified homeless youth is 18
• The maximum age limit has been eliminated which will allow individuals age 65 or older to be eligible
• The maximum credit has been increased to $1,502
• The income level at which the credit begins to phase out is increased to $11,610. Credit fully phases out at $21,430.

What is EITC

The earned income tax credit (EITC) is a tax credit for certain people who work and have earned income under $51,464 ($57,414 for Married filing jointly). This credit may give a qualifying taxpayer a refund even if they do not owe any tax or did not have any tax withheld from their wages.

Earned income includes all taxable income and wages that an individual receives from working for someone else, themselves, or from a business or farm they own.

What does EITC Stand for

EITC stands for Earned Income Tax Credit.

EITC Eligibility

Eligibility for EITC is determined first for the taxpayer themselves and then on whether or not they have children. If they have children, then each child must meet the requirements to be a qualifying child for EITC purposes. If the taxpayer does not have any children, the taxpayer must meet all of the requirements to qualify for EITC for individuals with no qualifying children.

EITC Requirements

To claim the EITC, a taxpayer must meet the following requirements:

• Their adjusted gross income and earned income reported on their 2021 federal return must be less than a certain amount based on their filing status and number of qualifying children
• Have a valid Social Security Number that is valid for employment
• Must be a U.S. citizen or resident alien all year
• Taxpayer’s investment income must be $10,000 or less
• Must have earned income
• Not be a qualifying child of another person
• Not file Form 2555 (related to foreign earned income)
• Filing Status cannot be Married Filing Separate unless the taxpayer lived with a qualifying child for over half the year, and
• The taxpayer must have lived apart from his or her spouse for the last six months of the year;

  OR

• The taxpayer must have lived apart from his or her spouse by the end of the year and also be legally separated according to state law under a written separation agreement or a decree of separate maintenance.

For more details see the Who Qualifies for the Earned Income Tax Credit on the IRS website.

EITC Requirements – Who is a Qualifying Child

To qualify for EITC, a qualifying child must have a valid Social Security Number and not be claimed by more than one person as a qualifying child.

The child must also meet the following tests to be a qualifying child for EITC purposes:

• Relationship Test
  Child must be the taxpayer’s:
• Son or daughter (including an adopted child or child lawfully placed for adoption)
• Stepchild
• Foster child placed by an authorized placement agency or a court with competent jurisdiction
• Brother, sister, half-brother, half-sister, stepbrother, stepsister or a descendant of any of them
• Age Test
  At the end of the year, the child was:
• Younger than the taxpayer (or their spouse if married filing jointly) and 
• younger than 19; or
• younger than 24 and a full-time student
• Any age if permanently and totally disabled
• Residency Test
• Child must live with the taxpayer, or their spouse if filing a joint return, in the United States for more than half of the year.
• Joint Return Test
• The child can not have filed a joint return, unless the child and the child's spouse did not have a filing requirement and filed only to claim a refund.

For more details see the Qualifying Child Rules for EITC page on the IRS website.

EITC Requirements for Taxpayers with No Qualifying Children

A taxpayer is eligible to claim the EITC without a qualifying child if they met all of the following for 2021:

• Meet all of the base EITC qualifying rules as stated in the EITC requirements for all taxpayers
• Have their main home in the United States for more than half the year
• Not be claimed as a qualifying child on anyone else’s tax return
• Be at least age 19 or
• At least age 24 if the taxpayer is a student attending school at least part-time; or
• At least age 18 if the taxpayer is a former youth or qualified homeless youth

Income Limits

The income limits for the earned income tax credit for 2021 are as follows:

EITC Tax Refund Schedule

The income ranges for the maximum earned income credit amount based on filing status for 2021 are as follows:

EITC Advance Amount

The earned income tax credit may not be received during the year as an advance of the credit claimed on their yearly federal income tax return.

In order to receive the earned income tax credit an eligible taxpayer must file a federal income tax return, meet all eligibility requirements and complete Schedule EIC if they have qualifying children.

How do I apply for the Earned Income Tax Credit (EITC)?

To claim the EITC, an eligible taxpayer must complete and file a federal income tax return, meet all eligibility requirements and complete Schedule EIC if they have qualifying children.