Am I Eligible for the Earned Income Tax Credit?
The Earned Income Tax exemption is up to $ 6,660 for qualified filers, but too many Americans seem to be unaware of this. Although 25 million Americans are eligible for assistance, the IRS claims that only 20% of them apply for the loan on their federal tax return. Here’s a look at why and whether you leave money on the table.
How does the Earned Income Tax Credit work?
The Earned Income Tax Credit (EITC) is primarily intended to provide financial assistance to working families with children. In tax year 2020, applicants can qualify for:
- A loan of $ 6,660 if you earn less than $ 56,844 and have three children.
- A $ 538 loan if you are single, earn less than $ 15,820 and have no children.
Please note that unemployment income does not count as earned income, so it cannot be included in your calculation. To learn more about EITC eligibility based on family size and income, check out this post by Nerdwallet .
The great thing about this particular loan is that it is reimbursable , which means that if the loan exceeds the amount of taxes you owe, you will receive the remaining amount as refund. Also, this year under the Taxpayer Guarantee and Tax Exemption Act 2020, if your earned income in 2019 was higher than in 2020, you can use the 2019 amount to calculate your EITC at 2020 (it’s worth mentioning here that President Biden’s US bailout plan proposes a temporary increase in the maximum amount allowed for workers without children from $ 530 to $ 1,500 applicable in the 2021 tax year ).
So why aren’t more people applying for credit?
Many low-income people do not file their tax returns at all as this is not required when you earn less than $ 12,200, so they just don’t know about it.
In addition, a loan can be the most difficult of all tax credits to calculate as it uses complex rules and formulas that are not easy to understand. Eligibility is determined by type of income (with limited investment income), marital status at the end of the year, citizenship status, as well as the number of children, place of residence and their age. In addition, eligibility may change from year to year.
How to determine if you are suitable
The quickest and easiest way to determine eligibility is to use the EITC helper on the IRS page. The site will guide you step by step through all the eligibility criteria in a questionnaire format, after which the amount of your debt will be calculated.
Also consider using the IRS Free File program, which partners with private tax companies to offer free software to calculate and process your EITC application. Of course, if at any point you feel uncomfortable using the loan software, it might be worth hiring a tax filing specialist .
Finally, consider the Income Tax Volunteer Assistance Program known as VITA , which offers personal (socially distant) services in various locations across the country. Unfortunately, due to COVID, there are fewer places offering VITA services this year, but you can try to find the closest one here .