Jhe Earned income tax credit is a measure that reduces the amount of tax that middle-income and low-income taxpayers ultimately have to pay. The exact amount of credit you can receive depends on a number of factors, with these credits ranging from $1,502 to $6,728 for the 2021 tax year.
It’s a benefit for people who work and pay taxes, but what about the self-employed? Here, we outline who exactly qualifies for the Earned Income Tax Credit and how to claim it.
Who can benefit from the earned income tax credit?
At the most basic level, the earned income tax credit eligibility criteria are as follows:
- Have worked and earned less than $57,414
- Have investment income of less than $10,000 in the 2021 tax year
- Have a valid social security number on your 2021 return due date (including extensions)
- Be a U.S. citizen or resident alien year-round
- Not filing Form 2555 (related to foreign earned income)
Can you claim an earned income tax credit if you are self-employed?
Yes, if you are self-employed you can also claim this credit, assuming you meet the other earned income tax credit criteria described above.
The IRS considers all earned income eligible for this credit, including that from self-employment. However, this might push some people over the $57,414 threshold, but if you stay below this limit when you combine self-employment income with income from wages, salaries, tips, allowances union strike and long-term disability benefits received before the minimum retirement age, you can claim this credit.
Keep in mind that claiming the earned income tax credit can slow down the tax filing process and delay any tax refunds that may be due to you. But, you will eventually get your money back and it may reduce the amount of tax you have to pay.