Filing your taxes is probably the least exciting thing you can do in the new decade. However, if you meet certain qualifications and income limits, you may be eligible for the earned income tax credit – which means you may be qualified for a tax refund.

The earned income tax credit is an excellent way to reduce your tax liability at the end of the year. Do you actually need it? Well, that depends on your income and family situation.

Everything You Need to Know About the Earned Income Tax Credit

earned income tax credit

Most families have heard of the earned income tax credit, but do you know what it is and who qualifies? We know that understanding IRS regulations can be a daunting task – that’s why we did the work for you.

Who Can Benefit from the Earned Income Tax Credit?

The earned income tax credit is specifically for low- and moderate-income Americans with or without children. It’s a refundable tax credit that varies depending on how much money your family earns each year and how many members are in your household.

Anyone who qualifies for the earned income tax credit can benefit from not only reducing how much you owe in taxes but potentially qualifying you for a tax refund. If you think you may qualify for an earned income tax credit, the IRS allows you to claim it for the previous three years.

How to Qualify for the Earned Income Tax Credit

In addition to the income limits that vary each year, there are a few requirements you must meet to qualify for the earned income tax credit. As of the 2019 tax year, those qualifications are:

  • You have earned at least $1 in income for the year, but pensions and unemployment income do not count.
  • You have less than $3,600 in investment income during 2019 and less than $3,650 in 2020.
  • You have to file a joint tax return if you’re married.
  • You cannot file Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion.

If you are a member of the military or clergy – or if you have disability income or children with disabilities – there are special rules for qualifying for the earned income tax credit.

Earned Income Tax Credit for 2019

If you meet the above requirements and you fall within the income limits for the earned income tax credit for 2019, you’ll qualify for the credit when you file your taxes in 2020. The income limits for 2020 depend on the number of children you and/or your spouse have:

  • No children: An individual can qualify if they earn $15,570 or less per year, and a couple can qualify if they earn $21,370 or less per year.
  • One child: An individual with one child can earn $41,094 or less per year, and a couple with one child can earn $46,884 or less per year.
  • Two children: An individual with two children can earn $46,703 or less per year, and a couple with two children can earn $52,493 or less per year.
  • Three or more children: An individual with three or more children can earn $50,162 or less per year, and a couple with three or more children can earn $55,952 or less per year.

The earned income tax credit for 2019 ranges from $529 for people with no children to $6,557 for people with three or more children.

Earned Income Tax Credit for 2020

As with the earned income tax credit for 2019, to qualify for the earned income tax credit for 2020 you need to meet the basic requirements listed above. The tax credit changes in 2020, but the income limits are still based on the number of children you have:

  • No children: Individuals may qualify if they earn $15,820 or less per year, and a couple may qualify if they earn $21,710 or less per year.
  • One child: Individuals with one child may earn $41,756 or less per year, and a couple with one child may earn $47,646 or less per year.
  • Two children: Individuals with two children may earn $47,440 or less per year, and a couple with two children may earn $53,330 or less per year.
  • Three or more children: Individuals with three or more children may earn $50,954 or less per year, and a couple with three or more children may earn $56,844 or less per year.

The earned income tax credit for 2020 – which you will file for in 2021 – ranges from $538 for people with no children to $6,660 for people with three or more children.

How to Qualify for the Earned Income Tax Credit if You Don’t Have Children

If you don’t have children, you may still qualify for the earned income tax credit. In addition to meeting the income requirements, you need to meet three more conditions:

  • Have resided in the U.S. for more than half of the year
  • Are not a dependent or qualifying child on anyone else’s tax return
  • Are under the age of 65 but over the age of 25

When you file your taxes, make sure you list all sources of income and verify if you can claim the earned income tax credit.

Want to know how you can optimize your earned income tax credit? Contact Mooney Lyons to find out how you can put your tax refund to work.