Hugely Popular Tax Break Expanded for More Working Taxpayers

Hugely Popular Tax Break Expanded for More Working Taxpayers

If I told you that a tax break for your 2021 tax return went from $538 to $1,502, my guess is that your eyes would pop out like crazy.

Then, if I told you that the income limits were raised so that people making $5,610 more than last year’s limit could now qualify? I bet I’d have your full attention.

And then, sprinkle in the fact that you can make up to $10,000 in investment income and still qualify.

Well, as they say, “Now we’re talking.”

All that describes the Earned Income Tax Credit (EIC) for single filers with no kids in 2021, and that’s just the beginning.

What is the Earned Income Tax Credit?

The Earned Income Tax Credit (EIC) is a refundable tax credit aimed at helping low- to- moderate-income working taxpayers reduce their taxes owed and even get a refund.

Since it’s refundable, the EIC could even come as a refund if your taxes owed are already covered (for example, employees who have had taxes taken out of their paychecks all year).

The EIC is also an incentive to work, since one of the requirements is earned income—think wages, tips, freelance work, etc.

In 2021, the credit was expanded so that more people without children now qualify, including at-risk youth and elderly taxpayers, and the highest credit amount is higher.

How much is the EIC worth?

The credit amount changes depending on how many children you have and how much you made in 2021. It works on a sliding scale, so while we list the full credit amount for context, you may not get the full amount based on your own situation.

So how do you calculate how much you qualify for? Leave that to us! When you file with 1040.com, we’ll run the calculations in the background so you get the biggest bang for your buck—without having to do the math.

For a full list of credit amounts, check out our Tax Guide page on qualifying for the EIC.

How is the EIC more inclusive for 2021 tax returns?

For the first time, the credit is now available to both younger workers and senior citizens.

In 2020, the EIC was limited to an age range if you didn’t have kids; only taxpayers from ages 25 to 64 could claim the credit if they had no dependents.

Now, that age range starts at 19 (unless you’re a full-time student under age 24) and has no upper age limit. There’s even a special exception for teens at least 18 years old and were formerly in foster care or are experiencing homelessness.

Who is most likely to qualify for the Earned Income Credit without realizing it?

Even in a year when the credit hasn’t been expanded, the IRS estimates that one out of five people who qualify don’t realize they can actually claim the EIC.

We need to expand awareness so that the credit is claimed by people who qualify this year and might not realize it, like workers:

• Without children, including those workers who are at least 19 years old and older than 64
• Living in non-traditional families, such as a grandparent raising a grandchild
• Whose earnings declined or whose marital or parental status changed
• With limited English language skills
• Who are members of the armed forces
• Living in rural areas
• Who are Native Americans
• With disabilities or who provide care for a disabled dependent

What if I only had unemployment benefits in 2021?

Since unemployment benefits are not considered earned income, you typically wouldn’t qualify for the EIC this year—however, that brings us to another part of the expanded credit.

So long as your earned income in 2019 was more than your earned income in 2021, you can use your 2019 income to figure your EIC this year. If you were working in 2019 and your income fell within the 2021 income limits, you’ll qualify for the EIC.

Do stimulus payments or Child Tax Credit payments count as earned income in 2021?

Since those are pandemic relief payments, they are not considered earned income.

Will claiming the EIC delay my refund?

Only for people who filed in early-to-mid January. See, the IRS is required by law to hold refunds that include the EIC until mid-February to make sure there is no fraud associated with the tax return filed. Since it’s a refundable credit, the EIC is a fraudster’s dream come true.

By the publish date of this blog post, though, the mid-February holding requirement wouldn’t make much of a difference; refunds generally take 21 days or less to be delivered after your return is accepted, anyway.

Feel good about getting all your tax breaks

The EIC makes life easier, but calculating the EIC is no walk in the park—that’s why we just ask you simple questions and do the math in the background. It’s just one more way you can feel good about filing your taxes with 1040.com.

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