The Earned Income Tax Credit (EITC) was enacted in 1975 as a way to support working poor families, and it has made it easier for single parents to work while caring for small children.  The amount of the credit depends on how much income is earned in a year, with the average credit in 2019 coming to around $2,500 per the IRS.  It is estimated that one in five eligible families fail to claim this credit.

      What’s new for 2021 is that the EITC is now much easier for low-income workers with no dependents to claim.  In the past both age and income limits kept people without dependents from getting the credit, but for this year only the rules have changed.  Anybody 19 or older who is not a dependent of someone else can now claim the credit if their income is below $21,000 (See the table below for more details.) The expansion of the credit was only for 2021, but congress is looking at extending it.   This is a refundable credit meaning that it’s payable even if the taxpayer owes nothing, but there’s a catch.

    The catch is that because of fraud issues surrounding it, the EITC is monitored very closely by the IRS.  Those claiming children need to be able to prove that the child lived with them, and those who are self-employed need to be able to prove their income and expenses.  And any tax professional that helps clients claim this credit must be able to document that handled it properly or face a $545 fine per client.  Plus, any refund that includes EITC is likely to be held up by the IRS and not disbursed in the normal 2–3-week time frame.

      For 2021, the people that may be missing out on this valuable credit include non-filers- those who didn’t have enough taxable income to be required to file. ($12,250 for a single person this year).  The working poor also tend to be more transient and may have trouble coming up with the proper tax forms that prove their earned income like form W-2.  The EITC is a valuable resource for lower income workers, and everyone that qualifies is encouraged to contact a tax professional if they need help with the required documentation.

Investment income limit: $10,000 or less

Maximum Credit Amounts
The maximum amount of credit you can claim

• No qualifying children: $1,502
• 1 qualifying child: $3,618
• 2 qualifying children: $5,980
• 3 or more qualifying children: $6,728