In a move that aims to equip taxpayers and tax professionals with relevant knowledge, the IRS has released a ‘fact sheet’ that seeks to answer some of the most common questions for the 2021 Tax Year Earned Income Tax Credit.
HOWEVER, the IRS does warn that because the FAQs are not published in the Internal Revenue Bulletin, they cannot be utilized as a valid reference point by the IRS for resolving matters.
Further, the FAQs are subject to periodic reviews and updates. Subsequent revisions will be dated to maintain a timeline of the changes made for easy reference.
Here is a simplified overview of the FAQs
- Earned Income Tax Credit (EITC)
The EITC is a refundable tax credit that cuts down on the amount of taxes owed by low-earning taxpayers. This means that the EITC allows low-income taxpayers to keep more money for themselves.
- Earned Income
Earned income is any taxable income received as payment for work done or services provided. It includes salaries, tips, bonuses, commissions, and net profits from self-employment.
Meanwhile, employee compensation only qualifies as earned income if it is taxable.
Find details in Publication 596 of Earned Income Credit.
- 2021 Earned income limits for taxpayers with no qualifying child
The earned income limits for eligible taxpayers above the age of 19 and without any qualifying children are pegged at $21,430 for individuals and $27,380 for couples filing a joint return.
- Eligibility age to the Earned Income Tax Credit for taxpayers without qualifying children
A nineteen-year-old who did not have a qualifying child but earned income might be eligible for the EITC when filing their tax return for 2021.
However, if you were 18 and met these requirements, you might also qualify for the EITC if you were homeless or were in a foster home.
Also, it is essential to ensure that your parents claim you as a dependent. If they can, you must include the information in your tax return to avoid complications and delays in processing.
- Is the Social Security Number (SSN) compulsory for Earned Income Tax Credit eligibility?
It is mandatory for individuals and spouses filing a joint return to have a valid SSN before the due date of your return (including extensions).
- Is it compulsory for qualifying children to have SSNsfor their parents to be eligible for Earned Income Tax Credit?
Apart from the fact that the amount of EITC you may be entitled to will be reduced, it is not mandatory that your qualifying children must have SSNs.
For up to three children, the amount of EITC you are eligible to claim increases with each of your children with a valid SSN, but you can also qualify for a smaller EITC if your qualifying child does not have an SSN.
- Claiming the EITC: Age requirements if you have a qualifying child
There is no age cap for people with one or more qualifying children.
- Earned Income limits if for people that have a qualifying child
If you have one qualifying child with a valid SSN, your limit would be $42,158 ($48,108 if married filing jointly).
If you have two qualifying children with valid SSNs, your limit would be $47,915 ($53,865 if married filing jointly).
If you have three or more qualifying children with valid SSNs, your limit would be $51,464 ($57,414 if married filing jointly).
- Can any refund from claiming the Earned Income Tax Credit affect government benefits?
No. Refunds gotten from federal income tax returns are not considered to be income in the eligibility process of federal government benefit programs or any federal government-financed benefit at either the state or local level.
- The maximum amount of the Earned Income Tax Credit for eligible taxpayers without qualifying children in 2021
From $538 in 2020, the maximum Earned Income Tax Credit has been upped to $1,502 for people without qualifying children in 2021
- Is there a limit to the amount of investment income I may make while still eligible for the EITC?
Yes. To be eligible for the Earned Income Tax Credit, your investment income in the 2021 tax year must not exceed $10,000. The $10,000 cap will be scaled for inflation after 2021. The limit used to be $3,650 for the 2020 tax year.
- Claiming Earned Income Tax Credit as a married taxpayer
For the Earned Income Tax Credit, married but separated couples who do not file a joint return may qualify to be classified as unmarried.
The spouse only has to have a qualifying child living with them for over six months to qualify.
Also, they must either have lived apart from the other spouse for a minimum of half of the year, or got separated legally and did not live with the spouse at the end of the tax year.
- Qualifying as a homeless youth
The requirements to qualify as a homeless youth are:
- Must be at least age 18
- Must prove that they are homeless (or at the risk), and independent
For details, check the box on line 27a on Form 1040, U.S. Individual Income Tax Return.
- Consideration
for qualification as a former foster youth
A person who is 18 years of age or older, was in foster care after the age of fourteen, and who consents to disclosure of such information from the foster care agency to the IRS will be considered a qualified former foster youth
- Choosing to figure the Earned Income Tax Credit using their 2019 earned income
As an eligible taxpayer, you can opt to calculate the Earned Income Tax Credit for 2021 using your 2019 earned income if it was greater than your 2021 earned income.
- Are students allowed to claim 2021 Earned Income Tax Credit?
Although a specified student under twenty-four years old cannot claim the EITC if they do not have a qualifying child, they will, however, be eligible to claim the EITC if they are an eligible former foster youth or qualified homeless youth who was 18 years old or older and met all other eligibility conditions for the Earned Income Tax Credit.
Also, joint filing with a spouse can allow a specified youth to claim the Earned Income Tax Credit.
- Specified student
The IRS comprehensively describes a specified student as “an individual who was enrolled in a program that leads to a degree, certificate, or other recognized educational credential and carried at least one-half the normal workload for a course of study during at least 5 calendar months of the year or an academic period, if longer.”
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