Am I entitled to the earned income credit while unemployed?


For more information on the Third Coronavirus Relief Package, please visit our “US Bailout: What It Means For You And A Third Stimulus Control” blog post.

As the name suggests, to qualify for the Earned Income Credit, you must “earn” income, for example by working. However, receiving unemployment benefits does not mean that you are automatically ineligible for credit. You will also need to meet other requirements to apply for the CIE. If you do, the credit can lower your taxes and even create a refund.

The Consolidated Credit Act (CAA) was enacted on December 27, 2020 as a stimulus measure to relieve people affected by the pandemic. For the 2020 tax year, the CAA allows taxpayers to use their 2019 activity income if they were greater than their 2020 activity income in the calculation of the additional child tax credit (ACTC) as well than the earned income tax credit (EITC).

Unemployment benefits

The IRS defines “earned income” as the compensation you receive from employment and self-employment. Any unemployment benefit you receive from your state is specifically excluded from this definition.

However, as long as you worked or were another self-employed person in the same year you started receiving unemployment checks, you may still be eligible for the earned income credit.

Limits of AGI

The Earned Income Credit is only available if your Adjusted Gross Income, or AGI, is less than the maximum applicable for the tax year. The maximum applicable AGI depends on your filing status and the number of eligible children.

  • The maximum applicable AGI increases for a maximum of three eligible children.

  • It is also higher for married taxpayers than for single people.

  • If you file your return using the separate filing status, you are automatically not eligible for the credit.

Your adjusted gross income, which you can find on the first page of your income tax return, is equal to: Your total income subject to income tax, less deductions that the IRS calls “income adjustments”.

To be eligible for the earned income credit:

It is possible that your earned income is below the threshold but your total income, and therefore your AGI, is above the threshold due to the addition of unemployment benefits. This could make you ineligible for the earned income credit.

To find the AGI thresholds for your specific situation, see: IRS Publication 596. If you are using TurboTax to prepare your taxes, we will ask you simple questions, do all the calculations, and let you know whether or not you are eligible for the credit.

Citizen or resident

You will not be eligible for the earned income credit if you or your spouse (if you are filing jointly) were a non-resident alien at any time during the tax year.

If you do not have U.S. citizenship, you must either have a green card that allows you to reside in the country or pass the IRS substantial presence test.

  • The test requires that you be physically present in the United States for a certain number of days.

  • You must also have a valid social security card that does not include the phrase “not valid for employment”.

  • If you are a US citizen or resident living abroad, you are not eligible for the tax credit.

Maximum investment income

Eligibility for the earned income credit also requires that your investment income for the 2020 tax year does not exceed $ 3,650. Your investment income never includes the money you earn in your profession and does not include unemployment benefits.

However, investment income includes:

Again, when you use TurboTax to prepare your income tax returns, we’ll ask you simple, easy-to-answer questions about your income and your life, and do all the work to determine if you qualify for the EAC or others. deductions and credits.

Remember, with TurboTax, we’ll ask you simple questions about your life and help you fill out all the right tax forms. Whether you have a simple or complex tax situation, we’ve got you covered. Feel confident in doing your own taxes.

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