For the first time this year, millions of Americans may qualify for a particularly generous tax break — the Earned Income Tax Credit (EITC) — thanks to an expansion of its eligibility requirements.
"There are important changes to EITC that will help this credit reach more hard-working families this year," IRS Commissioner Chuck Rettig said in a statement. "We urge people potentially eligible for this valuable credit to review the guidelines; many people each year overlook this and leave money on the table."
Historically without the expansion, 1 in 5 eligible Americans don’t claim the EITC, prompting the Internal Revenue Service to hold an EITC Awareness Day each year — this year on January 28 — to make sure taxpayers don’t miss out.
If your marital status changed, you’re a member of the armed forces, disabled, living in a rural area, a grandparent raising a grandchild, or Native American, you may be eligible for this credit.
More workers without children can also qualify for the EITC due to income threshold increases, filing status, and the lookback election. Here’s what you should know.
Seniors and young workers now eligible
In the past, the EITC for those with no dependents was only available to people ages 25 to 64. Not for the 2021 tax year. Single filers without qualifying children who are at least 19 years old with income below $21,430 and joint filers with no children and income below $27,380 will now qualify for the credit. There is also no upper age limit for claiming the credit if you have earned income.
The maximum EITC for these filers is also better — $1,502 from $538 in 2020.
New income thresholds
“If you filed last year and your income was just above the limit to claim this credit, know that the income threshold has increased,” Manuel Dominguez, a senior tax research analyst at H&R Block, said in a webinar hosted by the National Consumers League (NCL). “And you may now be eligible for this credit this year.“
The income threshold also increased for married filing jointly who have children. In 2020, the income threshold was $56,844 with a maximum credit of $6,660, while this year, the income max is $57,414 with a maximum credit of $6,728.
Lookback election can help you qualify
“If your income in 2019 is higher than your income in 2021, [the lookback election] …using that 2019 income allows you to claim a higher earned income tax credit,” Dominguez said.
To take advantage of this election, taxpayers must have earned income through employment or other sources. The lookback election helps workers get a larger credit if they earned less in 2021 or received unemployment income instead of their regular wages.
Other key changes
Certain changes to the law expand the EITC for the 2021 tax year as well as future years.
In previous years, the credit wasn’t available for married filing separately. This year and going forward, those who file married separately can claim the credit if they meet other qualifications.
Those with investment income up to $10,000 can get the credit. In 2020, the limit was $3,650. In future tax years, the limit will adjust for inflation.
Last, filers with children can claim the credit even if their children don't have Social Security numbers. As long as the filers themselves have a Social Security credit, they qualify for the credit. In the past, they didn't.
Expect EITC refunds by early March
If your refund is based partially or fully on the EITC, by law, the IRS cannot issue those refund payments until mid-February — even if your refund includes other credits not related to the EITC.
This delay is to prevent fraud and errors. For the earliest filers, the IRS expects refunds to be in filers' bank accounts or on debit cards by the first week of March.
Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda