IRS Issues New Guidelines for the Earned Income Tax Credit — What Do You Need To Know?

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The IRS posted new guidelines about the Earned Income Tax Credit on its website this week that aim to provide more information to eligible taxpayers on how to properly claim the credit when they prepare and file their tax returns this year.

See: Tax Refund 2022 — You Could Miss Out on $6,728 by Not Claiming the Earned Income Tax Credit
Find: 7 Things You Need To Know When Filing Your Tax Return This Year

As previously reported by GOBankingRates, the EITC is one of the biggest tax credits you can receive, and this year it is worth up to $6,728 for families with three or more children. The credit aims to provide financial relief to low-to-moderate-income families. For EITC purposes, “earned income” generally means wages, salaries, tips and other taxable employee pay, and net earnings from self-employment, according to the IRS.

The new guidelines, presented in the form of frequently asked questions, provide details on what the EITC is, how it was expanded for 2021, which taxpayers are eligible and how to claim it.

For the 2021 tax year (to be filed this tax season), more workers without qualifying children can qualify for the EITC because the maximum credit has nearly tripled for eligible taxpayers, Accounting Today reported. And for the first time, the credit is available to younger workers because there is no age limit cap.

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Here are some of the highlights of the new guidelines, according to the IRS FAQ page:

  • For 2021, the EITC is generally is available to the following eligible taxpayers who are at least 19 years old without qualifying children:
    • Individuals who have earned income of less than $21,430
    • Spouses filing a joint return who have earned income of less than $27,380
  • For the 2021 tax year only, the EITC has no age limit cap for eligible taxpayers without qualifying children. Prior to 2021, the credit for those without qualifying children was only available to people ages 25 to 64. However, if you are 18 or older, make sure your parents or others can’t claim you as a dependent. There are no age requirements for claiming the EITC if you have one or more qualifying children.
  • The earned income limits for taxpayers with qualifying children are as follows:
    • $42,158 ($48,108 if married filing a joint return) if you have one qualifying child with a valid Social Security number
    • $47,915 ($53,865 if married filing a joint return) if you have two qualifying children with valid SSNs
    • $51,464 ($57,414 if married filing a joint return) if you have three or more qualifying children with valid SSNs
  • For the 2021 tax year, the maximum EITC for those without qualifying children is $1,502, up from $538 in 2020
  • You might be eligible for the EITC in tax year 2021 if your investment income is $10,000 or less. After 2021, the $10,000 limit is indexed for inflation. The limit for tax year 2020 was $3,650
  • Most students below age 24 are not eligible to claim the EITC without a qualifying child. However, there are exceptions based on the following:
    • You are a qualified former foster youth or qualified homeless youth who was at least 18 years old and satisfied the other requirements for claiming the EITC, or
    • A married specified student who is filing jointly with a spouse who is otherwise eligible for claiming the EITC

Another change is that filers can calculate the EITC using their 2019 earned income if it was higher than their 2021 earned income. In some cases, this option will give them a larger credit.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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