Earned Income Credit: Know the Basics and Learn If You Qualify

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Earned Income Credit: Know the Basics and Learn If You Qualify

You may have heard about Earned Income Credit before, and there may be questions circling around your mind right now. What exactly is earned income credit? Do I qualify for it? How I do claim one? We have compiled answers to these questions as we provide you with Earned Income Credit crash sheet. 

 

What is Earned Income Credit? 

Earned Income Credit also known as Earned Income Tax Credit (EIC or EITC) is a refundable tax credit for workers with low to moderate-income. It is also coined as a “work bonus plan” to supplement the said workers. This year 2021, the earned income credit ranges from $1,502 to $6,728. The amount someone can receive depends on income, tax filing status, and the number of children. 

We all know that 2020 has been tough due to the COVID-19 pandemic and taxpayers reported lower income compared to 2019. 

 

Who Qualifies for Earned Income Credit? 

As mentioned before, EIC applies only to taxpayers with low to moderate-income which is set at $3650 for 2020. This applies whether they have qualifying dependents or not. To claim the EIC for 2020, a taxpayer with no qualifying dependent must meet the following criteria:

  • Must be at least 25 up to 64 years old 
  • They must live in the US for more than half of the tax year

A qualified dependent, as defined by the tax law, is a child who is related to the taxpayer by birth, adoption, or fostering. The child can also be a sibling or the child of a sibling such as a niece or a nephew. For those taxpayers with qualifying dependent, they must meet the following criteria:

  • Must be a US citizen and must live in the US for the entire year and have a valid Social Security number by the tax return’s due date
  • Have children 19 years or younger; students aged 24 or younger or children with disability 
  • The taxpayer must be older than the dependent, unless the dependent is permanently disabled
  • The child must have lived  in the US with you or your spouse for more than half a year
  • Qualifying children must be provided on Schedule EIC which is filed with the taxpayer’s Form 1040

 

How to Qualify for Earned Income Credit? 

If you qualify for earned income credit, the next question is “how do I qualify?” These are the ways how one can quality and claim earned income credit.

  • A single filer with no dependents earning less than $15,280 in 2020 is eligible for an earned income tax credit of up to $538
  • A married taxpayer and spouse filing jointly, having two children who are qualifying dependents, can claim up to a maximum EIC of $5,920 if the total of the couple’s earned income in 2020 is less than $53,330

For married couples, the table below shows maximum earned income tax credit amounts, plus the max a couple can earn before losing the benefit altogether. This applies to taxes due on April 20201. 

 

Number of

children

 Maximum earned

income tax credit

 Max earnings,

single or head of

household filers

 Max earnings,

joint filers
0 $538 $15,820 $21,710
1 $3,584 $41,756 $47,646
2 $5,920 $47,440 $53,330
3 or more $6,660 $50,954 $56,844

 

In Summary

  • Earned Income Credit can be claimed by low to moderate-income workers with or without qualifying dependents providing they meet the criteria mentioned above. 
  • Both single and married taxpayers can claim this benefit granting they meet the criteria
  • The lesser the income, the larger the income credit you can claim. 

We just debunked how earned income credit works and how someone can qualify. It is best to claim it when you do your taxes to fully enjoy the benefits of earned income credit. After all, it’s a government-mandated benefit aimed to help us out, and it won’t hurt to do so. 

The post Earned Income Credit: Know the Basics and Learn If You Qualify appeared first on Credit Planned.


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