The EITC is for people who work but have lower incomes. If you qualify, it could be worth up to $6,660 in 2020, up from $6,557 in 2019, so you could pay less federal tax or even get a refund. The credit is a refundable credit, which means you can get the benefits of the credit even if you do not owe any taxes. That’s money you can use to make a difference in your life.
Even though this credit can be worth thousands of dollars to a low-income family, the IRS estimates as many as 25 percent of people who qualify for the credit do not claim it simply because they don’t understand the criteria. Plus, many individuals who never qualified for the EITC previously may be eligible in 2020 because their income will be lower as a result of the COVID pandemic.
If you qualify for but failed to claim the credit on your return for 2017, 2018 and/or 2019, you can still claim it for those years by filing an amended return or an original return if you have not previously filed.
The EITC is based on the amount of your earned income (EI) and whether there are qualifying children in your household. The credit increases as the taxpayer’s earned income or adjusted gross income (AGI) increases until it reaches a plateau, where it remains constant at the maximum credit amount until it reaches the AGI phase-out threshold. Once the threshold amount is exceeded, the credit is reduced by a set percentage, and no credit is allowed once the income exceeds the top of the phase-out range. The following table illustrates the maximum credit and phase-out ranges based on filing status and number of children for 2020.
|Filing Status||Number of Children||Credit %||Maximum Credit||EI Phase-out Threshold Starts||EI Phase-out Threshold Ends|
|Joint Filing||3 or more||40.00||$6,660||$25,220||$56,844|
If you have children, they must meet relationship, age and residency requirements. Additionally, you must file a tax return to claim the credit. The EITC income qualifications are annually inflation-adjusted.
To claim the credit, you must meet a few basic rules:
Active Military – Members of the military can elect to include their nontaxable combat pay in their earned income for the earned income credit. If that election is made, the military member must include all nontaxable combat pay received as earned income. If spouses filing a joint return both received nontaxable combat pay, then each one can make a separate election.
Disabled – Disabled individuals frequently overlook the opportunity to claim this credit. Even though they may not be working and earning income, certain disability income is treated as earned income for purposes of the EITC and includes the following amounts:
If you have questions about your qualifications for this credit or need help amending or filing a prior year’s return to claim the credit, please give this office a call.