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The Earned Income Tax Credit (EITC) is one of the federal government’s largest refundable tax credits for low-to moderate-income families. For tax year 2021 (filed in 2022), taxpayers with three or more qualifying children could receive up to $6,728, regardless of whether they owe taxes or not.
This year’s expansion of the EITC means that even more people may qualify for this important tax credit just for filing a 2021 tax return. This includes people who do not have qualifying children such as younger workers and senior citizens, workers whose 2019 income was greater than their earnings in 2021, and those with investment income up to $10,000, to name a few.
Key Takeaways
- For tax year 2021 only, for returns filed in 2022, qualifying workers without qualifying children can received up to three times the EITC as in 2020.
- Taxpayers have the option to use 2019 earned income instead of 2021 income if 2019 income was higher.
- For 2021, EITC amounts have been increased and thresholds have been expanded to provide higher credits to more taxpayers.
- Starting in 2021 and continuing in future years, taxpayers with up to $10,000 in investment income can still file for the EITC (future amounts will be indexed to inflation).
- Beginning in 2021, married but separated spouses will have the option to be treated as unmarried for purposes of filing for the EITC.
- Single people and couples with children can file for the EITC even if the children do not have SSNs, starting in 2021.
EITC Changes for Tax Year 2021
Among the recently announced changes to the EITC, several apply to tax year 2021, only.
Workers without qualifying children
They can now qualify for almost three times the EITC as in 2020. For the first time, the credit is available to younger workers at least 19 years old with earned income below $21,430 if filing single and $27,380 if married filing jointly. Since there is no upper age limit for claiming the EITC for 2021, senior citizens are also eligible.
The maximum credit for taxpayers without qualifying children is $1,502. It was $538 in 2020. There are also special exceptions for 18-year-olds who were previously in foster care or who are homeless.
Full-time students under 24 without a qualifying child do not generally qualify for the Earned Income Tax Credit.
Workers whose 2019 earned income was more than their 2021 earned income
They have the option to use their 2019 income to determine their EITC for 2021. Taxpayers with lower employment income in 2021 may receive a larger EITC if they use their 2019 income.
The IRS cautions that it’s important to verify a larger credit by reviewing line 27c of IRS instructions for Form 1040 as well as IRS Pub. 596 (2021), Earned Income Credit (EIC). The amount of the credit varies depending on the amount of earned income and number of qualifying children.
The EITC has been increased and AGI phaseout has been expanded for 2021
This means taxpayers with a higher AGI may still qualify for the EITC and all qualifying taxpayers will receive a higher tax credit than in the past.
Note that third-round Economic Impact Payments and child tax credit payments are not taxable and not counted as income for purposes of claiming the EITC. Anyone who is missing a stimulus payment or received less than the full amount they were due, may be eligible to claim the amount due on their 2021 tax return.
EITC Changes for 2021 and Beyond
Several other changes, new for 2021 will continue in future years.
Investment income
Investment income will not necessarily preclude taxpayers from receiving the EITC beginning in 2021. The cutoff amount for 2021 is $10,000. Beginning in tax year 2022 (filed in 2023), the $10,000 limit will be indexed to inflation.
Married but separated spouses
Starting in tax year 2021, married but separated spouses will be able to choose to be treated as not married for the purposes of claiming the EITC. The spouse who claims the credit cannot file jointly with the other spouse and they must have a qualifying child living with them for more than half the year. In addition, according to the IRS, they must either:
- “Not have the same principal residence as the other spouse for at least the last six months out of the year; or
- Be legally separated according to their state law under a written separation agreement or a decree of separate maintenance and not live in the same household as their spouse at the end of the tax year for which the EITC is being claimed.”
Taxpayers planning to exercise this option should file Schedule EIC – Form 1040 and check the box showing that they are “married filing separately with a qualifying child.”
Single people and couples with children
They can claim the EITC even even if their children do not have SSNs. This will result in the smaller credit available to workers who do not have qualifying children.
Taxpayers planning to make this claim should complete Schedule EIC and attach it to Form 1040 or 1040-SR if they have at least one qualifying child without a valid SSN.