Eligible?
One in five low to moderate earners eligible to receive a check from the U.S. Treasury aren’t aware that they need to take action now to claim a credit called the Earned Income Tax Credit (EITC).
Why are people missing this opportunity to receive extra money? I don’t have the answer, but I’ll guess it may be a lack of awareness — not only about the availability of the credit, but also that a tax return needs to be filed (even if income is below filing requirements) to claim the payment. If you qualify, the EITC is payable to you even if you owe no taxes; it’s not just a credit against taxes.
Age
Before retirees go too far in considering the possibilities, there is an age limit: to qualify for the EITC for the 2023 tax year, your birthday must be between December 31, 1958 (age 65) and January 2, 1999 (age 25).
If you are 65 or older, it’s a no-go even if you meet all of the other qualifying requirements, which you can find in IRS Publication 596 (2023), Earned Income Credit.
For others, it’s worth the effort to do some research — we’ll talk about steps to take. Last year, about 23 million workers and families received EITC payments that averaged $2,541.
Maximum EITC
The amount of the EITC payment depends on earned income, filing status (you do need to file a tax return to receive the credit) and children (or relatives) claimed as dependents. The largest potential credit goes to larger families with three or more qualifying children ($7,430). Individuals with no qualifying children are maxed out at $600.
These are the maximum limits:
No qualifying children: $600
One qualifying child: $3,995
Two qualifying children: $6,604
Three or more qualifying children: $7,430
Could you qualify?
Could you or someone you know qualify for EITC?
Start with earned income. Limits on income for the 2023 tax year are:
· $56,838 ($63,398 married filing jointly) with three or more qualifying children
· $52,918 ($59,478 married filing jointly) with two qualifying children
· $46,560 ($53,120 married filing jointly) with one qualifying child
· $17,640 ($24,210 married filing jointly) with no qualifying children
In all cases, investment income must be $11,000 or less, plus each qualifying child must have a valid Social Security number. There are other requirements, for example, you must have lived in the U.S. for more than one-half of a year.
To delve more deeply into qualifying, I suggest using an IRS tool called the EITC Assistant. Don’t rush. As you might expect, the tool won’t help you if your input isn’t accurate. If the tool doesn’t appeal to you, refer to IRS Publication 596.
EITC Assistant
Take this example: A couple who make a total of $50,000 a year (before taxes) and file jointly have two children under the age of 18. By using the tool, which asks questions about filing status, adjusted gross income, earned income and qualifying children, the couple discovered that they are eligible for an EITC of nearly $2,000.
What About Prior Tax Years?
Let’s say you now realize that not only do you qualify for 2023, but you also qualified for tax years 2020, 2021, and 2022. You can still take action on those earlier years. You have until May 17, 2024 to file a tax return (or an amended return) for the 2020 tax year. While you have until April 18, 2025 for the 2021 tax year and April 18, 2026 for the 2022 tax year, there is no reason to delay. File now.
Link to this IRS website for directions on how to claim the credit.
Don’t Qualify Yourself? What About Kids?
If your 2023 earnings put you above EITC limits, what if you have children (born before January 2, 1999) who could benefit based on their 2023 earnings? Would they be restricted from the EITC? The answer is: not necessarily. Go through the qualifying questions. It’s worth the effort.
If you advise your children about the credit, make sure to add that the best use of those funds is to contribute to a Roth IRA. The deadline for a 2023 tax year IRA contribution is April 15, 2024.