Find out if you qualify

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When you earn a certain income, you are required to pay federal income taxes, which can reduce your income. To ease your financial burden, the Internal Revenue Service offers various tax credits you may be entitled to, such as the Earned Income Tax Credit – aka EITC.

The Taxpayer Certainty and Disaster Tax Relief Act 2020 gave taxpayers some relief from the EITC this year. If your earned income was higher in 2019 than in 2020, you are allowed to use your 2019 income to calculate your credit for 2020, according to the IRS.

Here’s what you need to know about the EITC and if you can take advantage of it to reduce your tax liability.

Find out: What are the federal tax brackets and 2020-2021 tax rates?

What is the earned income tax credit?

Earned income is the money you were paid to work for someone else or the money you earned from running your own business or farm. In general, earned income can include:

  • Wages

  • Self-employment income

  • Union benefits

  • Long-term disability benefits received before reaching the minimum retirement age (but do not include income such as capital gains, dividends, alimony, social security or unemployment benefits)

Each eligible child you claim increases the limits on earned income and adjusted gross income (AGI).

Find out more: Tax year deadlines to know

Earned Income Tax Credit Income Limits

The earned income tax credit is only available if your income does not exceed certain limits, some of which are based on your reporting status and the number of eligible children you are reporting. This table details earned income and AGI ceilings:

Earned Income Tax Credit Income Limits for the 2020 Tax Year

If your filing status is:

Number of eligible children

0

1

2

3

Alone

$ 15,820

$ 41,756

$ 47,440

$ 50,594

Head of household

$ 15,820

$ 41,756

$ 47,440

$ 50,594

Surviving spouse

$ 15,820

$ 41,756

$ 47,440

$ 50,594

Married Joint deposit

$ 21,710

$ 47,646

$ 53,330

$ 56,844

Information correct as of February 19, 2021.

The Working Income Tax Credit gives low-income taxpayers an additional credit on their tax return as a reward for earning income and helping support their families. The credit may increase for taxpayers with qualifying children. In fact, for some taxpayers, this tax break could be worth as much as $ 6,660.

Discover: 8 new or improved tax credits and reliefs for your 2020 return

Am I entitled to the income tax credit?

A tax credit is one of the fastest ways to reduce tax payable – it is a direct reduction in the amount of tax owed. To be eligible for the IRS earned income credit, you must have earned income during the year. Here’s what else you need to do to qualify:

  • Your investment income for the year cannot exceed $ 3,650.

  • You cannot complete Form 2555, Foreign Earned Income.

  • Your filing status does not have to be married filing separately.

  • You must be a U.S. citizen or a year-round resident alien.

  • Neither your earned income nor your AGI can exceed your deposit status limit.

In addition, you, your spouse (if married), and any eligible child you are claiming must have a valid social security number that was issued before the filing deadline for your tax return, including any extension to it. tax for which you are entitled.

Remember: all the new numbers you need to know to plan your taxes in advance

Filing status and rules for eligible children

Your filing status must be one of the following: single, head of household, surviving spouse or married declaring jointly. You cannot apply for the EITC if your tax return status is a separate filing.

Eligible children are not limited to your biological children, and just because someone is your biological child does not automatically mean that he or she is your eligible child. The eligible child must pass the relationship test, age test, residency test and joint return test.

  • Relationship test: The child must be your biological or adopted child, your step-son, your foster child, a descendant of one of your children, a brother, a half-brother, a half-brother or a descendant of one of your siblings.

  • Age test: The child must be younger than you or your spouse and be under 19 or, if a full-time student, under 24. The person also meets the age criterion if they are definitely and totally disabled, regardless of their age.

  • Residence test: The child must live with you in the United States for more than half of the year.

  • Joint return test: The person cannot file a joint tax return with a spouse unless the child’s spouse has not been required to file and has only filed for a tax refund.

Related: What All Parents Should Know About the Child Tax Credit

Apply for the credit without eligible children

You do not have to have eligible children to benefit from the EITC. Although the credit is limited, you can still claim it as long as you meet the basic criteria as well as these additional criteria: [7]

  • You have lived in the United States for more than half of the year.

  • No one else can declare you as a dependent or eligible child on their income tax return.

  • You are under 65 and at least 25 at the end of the year.

More from GOBankingTaux

Cynthia Measom contributed to the writing of this article.

Last updated: February 19, 2021

This article originally appeared on GOBankingRates.com: Earned Income Credits Table: Find Out If You Qualify


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