Qualifying for the earned income credit on your tax return is like hitting the jackpot in the world of tax credits. It's the hottest credit around for low- and moderate-income individuals and can immediately put more money in your pocket. If you feel left out of the tax benefits that the wealthiest individuals receive, the 2021 increase in earned income limits and credits is your chance to cash in on the tax code.
Tax credits are a true treasure on your tax return
Every taxpayer's goal is to get more tax credits and deductions during tax time to reduce the amount of taxes owed. Tax credits are the most in-demand option, providing a dollar-for-dollar reduction of the income tax owed to the federal and state governments. For example, if your tax bill is $5,000 and you receive a $4,000 earned income tax credit (EITC), your tax bill is automatically reduced to $1,000.
What makes the earned income tax credit so appealing is that it's a refundable credit for individuals on the lower end of the income scale. Unlike a nonrefundable tax credit that only allows you to claim a refund up to the amount you owe, a refundable tax credit can mean extra cash in your pockets when you file your tax returns. If your tax bill is only $2,000 and you receive $3,000 EITC, you walk away with a $1,000 refund.
Digging deeper into the qualifications
To qualify for this coveted tax credit, you must have earned income and meet requirements for those without a qualifying child or have a child that meets the qualifying child rules. You must also have a Social Security number and cannot be the qualifying child of another person. If you file married filing separately or don't file a tax return, you do not qualify for EITC.
Contrary to popular belief, you can claim EITC as a single person without kids. There's one important caveat: age matters. You must be at least 25 years old and under 65 at the end of the year if you don't have a qualifying child. Make sure you have lived in the United States for more than six months and do not qualify as a dependent or qualifying child on someone else's tax return.
A look into the 2021 EITC benefits
If your income is too high, you won't be eligible for the EITC benefits. On the other hand, you must have total earned income (from a job or self employed activities) of at least $1 and your investment income must be $3,650 or less for the year.
If you meet the income requirements, you'll receive a credit based on the number of qualifying children you have. The maximum amount of credits for those with no qualifying children is $543 (up from $538 in 2020), one qualifying child is $3,618 (up from $3,584 in 2020), two qualifying children is $5,980 (up from $5,920 in 2020), and three or more qualifying children is $6,728 (up from $6,660 in 2020).
Below is a table that shows maximum income amounts based on filing status and number of qualifying children.
2021 adjusted gross income maximum amounts
If Tax Filing Status is...
No Qualifying Children
1 Qualifying Child
2 Qualifying Children
3 or More Qualifying Children
Single, head of household, or widowed
Married filing jointly
In addition to claiming this one-of-a-kind tax credit, there's another bonus that will make you smile during tax time: filing your tax returns for free! Typically, if you're in the income range for EITC, you are also eligible to use the IRS free tax filing software and services and double up on your savings during tax time.
Don't miss out on your credit
Many people overlook the earned income tax credit because they automatically assume they do not qualify. If you're reading this and realized that you qualified for EITC in previous years, it's not too late to claim your credit. You can go back to the last three years of tax returns and claim your credit if you met the guidelines for each year.
To find out if you qualify, check out the EITC Assistant on the IRS website to determine your eligibility. It could mean thousands of extra dollars in your pocket.
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