Eligibility for the 2021 Earned Income Credit (2/2)

The IRS recently highlighted revised eligibility rules for the Earned Income Credit. While many of the changes apply only for tax year 2021, several new rules will hold for future years as well. If you have earned income (such as wages, tips or self-employment income) and low to moderate overall income, you may now qualify for the credit even if you did not in the past.

Here are the rest of the key changes that apply for years 2021 and beyond:

HIGHER LIMIT ON INVESTMENT INCOME: For 2021, workers with investment income of up to $10,000 may qualify for the EITC. This limit is over two and a half times the 2020 threshold of $3,650. For years 2022 and later, the $10,000 limit on investment income will be adjusted upward based on inflation.

NEW RULES FOR MARRIED BUT SEPARATED SPOUSES: If you are separated from your spouse and have a qualifying dependent child, you may now have the option of being treated as unmarried for the purpose of the EITC. This rule enables some workers whose spouses have higher incomes to qualify for the credit. Generally, you must have lived separately from your spouse for at least the last half of the year and/or have a legal separation decree in order to use this option.

WORKERS WHOSE CHILDREN LACK SSNS MAY QUALIFY: Prior to 2021, most workers whose children did not have Social Security Numbers (SSNs) could not claim the EITC. Single and married workers may now apply for the credit as long as they have SSNs, even if their children do not. These workers will generally receive the same credit amount as childless EITC recipients.

You may claim the EITC even if you owe no tax, in which case you will receive the credit as an IRS refund. However, you MUST file a 2021 tax return to receive the credit. If you are unsure how to claim the credit, a tax professional can help you complete a return and file it electronically for faster processing.