How is expanding the EITC beneficial?
The EITC is essentially a wage subsidy designed to help lower-income taxpayers with families. Expanding EITC benefits to working adults without children in the home, a group that historically does not receive much benefit from the credit provides this population with the ability to potentially receive a larger tax credit. The maximum earned income tax credit for adults with no qualifying children will be nearly tripled, increasing the maximum credit amount to $1,502 from the current maximum amount of $538 for this group of taxpayers.
The second way this expansion may benefit taxpayers is by allowing more people with higher incomes to claim the tax credit by increasing the income limit. Currently, the credit only applies to those earning less than $16,000, but under the expanded EITC, taxpayers earning up to $21,000 will now qualify.
Tax legislation passed in late December of 2020 included a special “lookback” for the EITC and the Child Tax Credit (CTC), which allows taxpayers to use their 2019 earned income amount to determine eligibility for the 2020 EITC and CTC. Taxpayers can choose the more tax beneficial income year and use that to compute their 2020 EITC and CTC.
Finally, the American Rescue Plan Act of 2021 also eliminated the age cap eligibility for the EITC of 65 years old, making any worker, even those over the age of 65, now eligible for the credit.
Who is affected by an expanded EITC?
The EITC benefits hardworking taxpayers working in lower-paying jobs. People with lower incomes are able to claim the EITC to decrease the amount of taxes owed, and sometimes also get a boost in their tax refund. The expanded EITC will allow even more people to benefit from this valuable tax credit, and in some cases, get an even larger credit.
To learn more about the EITC and to see if you qualify for this credit, schedule an appointment at your nearest Jackson Hewitt office location.