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January 14, 2021

Changes related to the Earned Income Tax Credit on 2020 Tax Returns May Mean More People Qualify

EITC-Tax-Tip-2021

New for taxpayers this year is a provision under the Taxpayer Certainty and Disaster Tax Relief Act of 2020. You may elect to use your 2019 earned income to figure your 2020 Earned Income Tax Credit (EITC) if your 2019 earned income is more than your 2020 earned income. For more information about this new choice on your tax return, see the instructions for Form 1040 for line 27, or our NTA blog.

Below is some information and tools to help you see if you might qualify for the EITC.

What is the EITC?

The EITC is a refundable tax credit which means workers may get money back, even if they owe no tax or the amount of the credit exceeds the amount of any tax owed.

The EITC is complex and it varies by income, family size, and filing status. To be eligible, you must have earned income or certain disability income. This means you must have income from working for someone or working for yourself. This includes taxpayers who have their own business or farm.

Unemployment benefits do not count as earned income. Therefore, having the opportunity to elect to use your income information from 2019, instead of 2020, when calculating eligibility might be beneficial for some taxpayers.

Military and clergy should review the IRS’s Special EITC Rules because taking this credit may affect other government benefits.

If you worked in 2020 and had income of less than $56,844, or if you worked during 2019 and made a similar amount, you may want to check your eligibility for the EITC with your 2019 income and again with your 2020 income to determine which amount produces a larger credit.

How much credit might I get?

The EITC can mean up to a $6,660 credit, depending on your income, filing status, and number of qualifying children. Workers without a qualifying child could be eligible for a smaller credit up to $538.

Visit the Income Limits and Range of EITC page to see, at a glance, the EITC income limits and credit amounts. The best way to see if you qualify and for how much is to use the EITC Assistant.

What are the basic qualifications?

Basic qualifications are:

  • Have a Social Security number (SSN) (including an SSN for your spouse if you file jointly) that is valid for employment and issued before the due date of the return (including extensions);
  • Not file as married filing separately;
  • Not file Form 2555 or Form 2555-EZ (related to foreign earned income);
  • Meet the investment income limitation;
  • Have earned income;
  • Not be claimed as the qualifying child of another person for 2020; and
  • (Generally) Must be a U.S. citizen or resident alien for the entire year.

Social Security numbers valid for work are required for everyone

The IRS reminds taxpayers to be sure they have a valid for work SSN for themselves, their spouse if filing a joint return, and each qualifying child before the due date (including extensions) of their tax return.

How do I know if my children qualify?

Children must meet certain relationship, age, residency, and joint return requirements to be a qualifying child.

A qualifying child, the child must pass all of the following tests:

  • Relationship
    • A son or daughter (including an adopted child or child lawfully placed for adoption)
    • Stepchild
    • Foster child placed by an authorized placement agency or a court with competent jurisdiction
    • Brother, sister, half brother, half sister, stepbrother, stepsister
    • Grandchild, niece, or nephew
  • Age, at the end of the filing year, the child was:
    • Younger than the worker (or the worker’s spouse if married filing jointly) and
      • younger than 19, or
      • younger than 24 and a full-time student at least 5 months of the year
    • Any age if permanently and totally disabled at any time during the year
  • Residency
    • Child must live with the worker, or the worker’s spouse if filing a joint return, in the United States for more than half of the year
  • Joint Return
    • The child cannot have filed a joint return, unless the child and the child’s spouse did not have a filing requirement and filed only to claim a refund (and claimed no credits such as the EITC).

Important: Only one person can claim the same qualifying child: If a child meets the rules to be a qualifying child for more than one person, only one person can use that child to claim the EITC. Also, if the child qualifies for both a parent and a non-parent, the non-parent can only get the credit if he or she has a higher Adjusted Gross Income (AGI) than either of the child’s parents. After applying the tie-breaker rules, the person who does not claim the qualifying child may be able to claim the EITC without a qualifying child, as long as all other requirements are met.

To see if your child qualifies for the EITC; see “Qualifying Child Rules” on irs.gov, Publication 596 or use the EITC Assistant.

How do I claim the EITC?

To claim the EITC, taxpayers need to file a Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors. If the you are claiming the EITC with a qualifying child, you must also complete and attach the Schedule EIC, Earned Income Credit to the tax return. Schedule EIC provides the IRS with information about your qualifying child or children, including names, ages, SSNs, relationship to you, and the amount of time they lived with you during the year.

Refund timing for EITC filers

By law, the IRS cannot issue refunds before mid-February for tax returns that claim the EITC. The IRS must hold the entire refund — even the portion not associated with the EITC. This change helps ensure taxpayers receive the refund they deserve and gives the agency more time to detect and prevent errors and fraud.

Generally, most EITC-related refunds should available, in taxpayer bank accounts or on debit cards, by the first week of March if the taxpayer chose direct deposit and there are no other issues with the tax return. However, you can check Where’s My Refund for your personalized refund date.

Avoid errors

Because the EITC is complex, many people claiming it make mistakes. You may want to get help if you are not sure if you qualify. However, taxpayers are always responsible for the accuracy of their own return even if they receive assistance.

Common errors include:

Claiming the EITC in error can have a lasting impact

Filing a tax return with an error on the EITC claim can:

  • Delay the EITC part of the refund until the IRS corrects the error. The delay can take several months.
  • Cause the IRS to deny all or part of the EITC. If this happens, you:
    • Must pay back the amount of EITC paid in error, plus interest.
    • May need to file the Form 8862, Information To Claim Certain Credits After Disallowance, to claim the EITC again.
    • May be banned from claiming the EITC for the next two years if the error is because of reckless or intentional disregard of the rules.
    • May be banned from claiming the EITC for the next ten years if the error is because of fraud.

What if I get a letter from the IRS?

In some cases, you may receive a letter from the IRS requesting additional information. To avoid further refund delay, you should respond promptly. If more time is needed for a complete response, or if you need help, it is important you call the phone number on the letter.

How do I get free tax help?

You can see if you qualify for the EITC by using the EITC Assistant tool on IRS.gov. Find information on who qualifies, how to file a claim, and more on TAS’s EITC page or the IRS’s EITC page.

Those who may qualify for the EITC should consider free tax return preparation services. Many organizations provide free tax return preparation at thousands of volunteer sites nationwide for those with income below 57,000 and for senior or disabled taxpayers.

  • The Volunteer Income Tax Assistance (VITA) program offers free tax return preparation for low- to moderate-income taxpayers. To find a nearby VITA site, use the VITA/TCE at Locator Tool.
  • Tax Counseling for the Elderly (TCE) offers priority assistance to people who are 60 years of age and older. To find a TCE site, visit the AARP locator web page.
  • Active duty military members and their families can receive free tax return preparation assistance at VITA sites within their installations. The volunteers can address military-specific tax issues.
  • EITC-eligible workers can also use the free tax return preparation and electronic filing program, IRS Free File. Free File is a public-private partnership that provides a free way to do a federal tax return either by using brand-name software or online fillable forms. Free File software is available now to millions of individuals and families that earn $72,000 or less. Some Free File partners also offer free state tax return filing.

Outside of IRS Free File, many other e-file software providers and tax professionals also provide free services for low-income taxpayers.

Help tax return preparers file a return correctly

If you do decide to engage a tax professional, understand that the preparer and the firm he or she works for have additional responsibilities to make sure the return is correct. Expect any preparer, whether paid or not, to ask many questions. Help your preparer by answering all questions and by bringing all the documents the preparer needs to get the return correct.

EITC and effect on other benefit programs

Refunds received from the EITC, or any other tax credit, are not used to determine eligibility for any federal or federally funded public benefit program such as Medicaid, Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (food stamps), low-income housing, or most Temporary Assistance for Needy Families (TANF) payments. Those who save their tax credit for more than 30 days should contact their state, tribal, or local government benefit coordinator to find out if their benefits count as assets.

What other credits might I qualify for?

If you qualify for EITC, see what other tax credits may be available. Be sure to review the Child Tax Credit and the Credit for Other Dependents and the Child and Dependent Care Credit.

What is the Taxpayer Advocate Service?

The Taxpayer Advocate Service is an independent organization within the Internal Revenue Service (IRS) that helps taxpayers and protects taxpayers’ rights. We can offer you help if your tax problem is causing a financial difficulty, you’ve tried and been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure just isn’t working as it should. If you qualify for our assistance, which is always free, we will do everything possible to help you.