The Earned Income Tax Credit (EITC), or Earned Income Credit (EIC), is a refundable tax credit targeted to working people with low to moderate income.
EIC is a refundable credit. You can take advantage of the credit even if you do not owe any taxes. (https://www.irs.gov/pub/irs-prior/p596–2020.pdf)
Plus, there is a new feature… the LOOKBACK rule for Earned Income Credit (EIC).
As part of the Consolidated Appropriations Act of 2021, passed in December of 2020, you can use your 2019 earned income to determine your EIC and the Additional Child Tax Credit if your 2020 earned income is lower than your 2019 earned income. This is an especially important rule. You can use whichever income gets you the larger credit.
To qualify for the EIC:
- You must have at least $1 of earned income: wages, salary, tips, net self-employment earnings (income less expenses), or disability benefits up to a certain threshold
- You file a federal income tax return for the tax year even if you do not owe any tax or are not required to file a tax return
- Taxpayer (and spouse) and any qualifying child must each have a valid Social Security number issued before the due date of your return
- Taxpayer must be a U.S. citizen or resident alien for the entire year
- Filing status can be married filing jointly, head of household, qualifying widow(er), or single. (You can’t claim the EITC if your filing status is married filing separately)
- Your tax year investment income must be $3,650 or less for the year
- Cannot file form 2555 relating to foreign earned income
- Rules for qualifying children:
- Child(ren) must be under age 19—age 18 or younger—at the end of the tax year and younger than you or your spouse (if you file jointly) OR under age 24 and a full-time student and younger than you or your spouse (if you file jointly) OR any age if permanently and totally disabled
- The child must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of these individuals, which includes your grandchild, niece, or nephew
- The child must have lived with you for more than half of the tax year (some exceptions apply)
- Only one person can claim the same child for the same tax year
The EIC may be disallowed if the taxpayer incorrectly files for the credit but does not meet these requirements.