Everything You Need To Know About Earned Income Credit

What is earned income credit? Earned income credit (EIC), also known as the earned income tax credit (EITC), was created as a "work bonus plan" to augment the incomes of low-wage earners while also helping to mitigate the impact of Social Security taxes. It is still seen as a tax break for low-income families fighting poverty.

It is only accessible to taxpayers with low or moderate incomes, regardless of whether or not they have qualified dependents, to take advantage of the EIC. Applicants for the credit in 2020 must be between the ages of 25 and 64, and they must have resided in the United States for more than half of the tax year. If the taxpayer is married, the individual or their spouse, filing jointly, must be between 25 and 64, and they must have no qualifying dependents.

Working

According to the IRS, the earned income tax credit (EITC) offers considerable assistance to low- and moderate-income working parents who claim a qualified child based on certain criteria such as relationship, age, domicile, and tax filing status. It had previously offered relatively little assistance to employees who did not have qualifying children (commonly referred to as "childless workers"). Still, the American Rescue Plan (ARP) dramatically increased the amount of assistance available to these workers until 2021.

The EITC is intended to benefit only those who are employed. Workers are entitled to a credit equivalent to a percentage of their wages, up to a maximum credit. The interest rate and the maximum credit amount are determined by the number of children in the household, with greater credits available to parents with more children. Families with one child will be eligible for a maximum credit of $3,618, while families with three or more children will be eligible for a maximum credit of $6,728 in 2021. The highest credit for childless employees is $1,502, almost three times more than it was previous to the ARP's implementation.

Eligibility

Some other qualifying regulations and conditions must be met and kept below the income levels. Here are the main qualifying requirements:

• You must have at least $1 in earned income (pension and unemployment benefits are not considered earned income).

• Your net investment income must be less than $10,000.

• Whether you're divorced or still married, you may be eligible for Earned Income Tax Credit for the tax year 2021. A combined tax return cannot be filed, and your kid must reside with you for more than half of the year to qualify. You must also have not resided with your spouse for the previous six months, or you must have a divorce agreement or court order separating you from your marriage.

Is My Kid Eligible For Earned Income Tax Credit?

If you want to include children in your EITC claim, they must meet three criteria to be considered a "qualified child":

• Relationship: Children who live with you should be your daughter or son.

• Age: To be eligible, the kid must be under the age of 19, under the age of 24 if enrolled full-time in college, or any age if completely and permanently handicapped.

• Residency: The kid must reside in the United States for at least half of the year with you. It is not necessary to live together for a certain amount of time.

American Rescue Plan Act of 2021

People who qualify as childless may benefit from the American Rescue Plan Act of 2021, which temporarily enhances their eligibility and raises the maximum credit they can get. The maximum credit has increased from $543 to $1,502 in the new year. The credit starts to phase off from $8,880 to $11,610 in income (and from $14,820 to $17,550 if you are married), depending on your situation. The minimum eligibility age has been lowered from 25 to 19, and the maximum age has been lowered from 25 to 24 for students who are enrolled at least part-time in school. The minimum eligibility age for former foster kids and youth experiencing homelessness has been temporarily lowered from 25 to 18 for a limited time.

Conclusion

The EITC's requirements might be difficult to understand and manage. Members of the military, ministers, members of the clergy, individuals receiving disability payments, and those who catastrophes have touched are all subject to special regulations. There may also be certain age limits in place.