For those who are not in the lowest-paid job, the federal Earned Income Credit is being tripled: Childless adults.
Low-income workers who are not married can get a credit of up to $1500 for the current tax year. This is nearly three times the value of the credit in 2020. The American Rescue Plan is a $1.9 trillion pandemic relief law signed into law by President Joe Biden. It expands the credit, raises income limits, and increases the age of eligible workers for 2021.
Gwen Garren (director of refundable credit program management at IRS) stated in a blog that the credit was now available for both younger workers as well as senior citizens.
Anyone aged 19 and older who has earned money last year but isn’t a student full-time can claim the extended credit this tax season.
Who is eligible?
The American Rescue Plan increased the income limit for childless workers to allow them to claim the EITC. When filing their tax returns, taxpayers without children who earn up to $21,430 through a job or gig, or self-employment, they can claim the credit. The EITC is not available to workers who earn more than $16,000 in most years. For those who have lost their job in 2020, taxpayers may also be eligible for the credit by using income starting in 2019.
Also, the IRS has removed previous years’ age limitations for EITC. The EITC was previously available to only those between 25 and 64 years old. The credit is now available to any 19-year-old worker who meets income guidelines. It also applies to 18-year olds who are homeless or have been in foster care.
The American Rescue Plan gives anyone aged 19 or older the opportunity to claim the expanded EITC. It increased both income eligibility and the credit size,” Kris Cox, deputy director for federal tax policy at Center on Budget and Policy Priorities (a left-leaning thinktank), said.
Experts estimate that the increased credit will be beneficial to between 17 and 20 millions workers, which includes older and younger workers who wouldn’t normally receive any credit and those who will get more money.
“Completely excluded”
With approximately 20 million households receiving the Earned Income tax credit in 2019, it has been called America’s most effective anti-poverty program. This program was first established by President Gerald Ford. It is intended to reward hard work. In 2019, about 20 million households received it.
The EITC is refundable, unlike many tax credits that can only reduce income tax to zero. This means that it can put money in the pockets of workers even if they have no tax liability.
Workers who do not have children receive a credit in most years. To qualify for the tax cut, a single worker must earn $15,800 per year. The maximum credit for individuals was $540. A credit of $5,800 would be available to a single parent with two children earning the same $15,000.
Kris Cox, deputy director for federal tax policy at Center on Budget and Policy Priorities, stated that this meant people who worked very low wages and were receiving such a small EITC. Young working adults and older adults were also excluded from the benefits of the EITC.
Because the EITC is less expensive for childless workers, they are less likely than others to claim it. Cox reports that about two-thirds (or more) of eligible childless taxpayers apply for the EITC each year. This compares to over 80% of taxpayers who have children.
The larger credit is a welcome development for many Americans as the roaring inflation consumes most low-wage workers’ pay gains.
While those without dependent children might not have to worry about the cost of childcare, they are paying more for food and gas as well as rent. These necessities might be beyond reach for these people,” Aidan Davis (senior state policy analyst, Institute on Taxation and Economic Policy), told CBS MoneyWatch.
Workers-supported organizations are pushing for the change to be permanent. A one-year extension was included in the House-passed version the Build Back Better Act .
Increased investment income limits
The EITC was available to workers who had an investment income of $3,650 or less. The limit was increased to $10,000 this year. Workers who earn money from dividends, interest, or selling investments are now eligible for the EITC.
This change to the tax credit is permanent, unlike other changes. The $10,000 limit will continue to apply and will be indexed to inflation.
How do I claim my credit?
Commercial tax software will often ask filers questions about their income in order to determine if they are eligible for the EITC.
To claim the credit, taxpayers shouldn’t be required to pay any tax. Anybody whose income is sufficient to qualify can also file their tax returns free of charge through the IRS’ File program, or at any of the hundreds of volunteer tax prep sites throughout the country.
If you are filing a paper tax return, or via Free File Fillable forms, the EITC appears as Form 1040. No additional paperwork is required. Schedule EIC will be required for taxpayers with children.
How long will you have to wait?
EITC claimants often have to wait longer to get their refunds than other filers. By law, refunds must be held until February to give the IRS extra time to review claims. Even if taxpayers file tax returns at the beginning of tax season, refunds are typically not received until mid-March.
EITC claimants should not have to wait longer than other taxpayers for their money. Most taxpayers will receive their refunds within 21 days, assuming that they filed electronically.
However, this year many taxpayers will have to wait longer. The IRS has a large backlog of tax returns that are not from previous tax seasons. Its commissioner warned that the IRS faces ” immense challenges.” “
States offer an earned income tax break
Most states have their own Earned income tax credit in addition to the federal credits. Residents of 28 states, the District of Columbia and other areas can receive an additional credit towards their state taxes this tax season.
The types of income and households that are eligible for state credits, as well the amount of money they return, vary greatly. The Earned Income Credit in a state could increase the credit’s value by 3% (in Montana) and double it for childless workers in Washington, D.C.
