Fewer Americans will qualify for this overlooked, but valuable tax credit

A valuable tax credit that many taxpayers normally miss won’t be available to as many Americans as last year.

The pandemic enhancements for the Earned Income Tax Credit (EITC) that increased the tax break’s eligibility expired for the 2022 tax year, leaving millions of Americans either unable to claim it or qualifying for a much smaller amount.

The expiration may compound the likelihood that many Americans who are still eligible for the EITC may disregard it this year. Historically, 1 in 5 eligible Americans don’t claim the credit, prompting the Internal Revenue Service to hold an EITC Awareness Day each year — this year on Jan. 27.

“This is an extremely important tax credit that helps millions of hard-working people every year,” IRS Acting Commissioner Doug O’Donnell said in a statement. “But each year, many people miss out on the credit because they don’t know about it or don’t realize they’re eligible.”

Last year, the American Rescue Act expanded the EITC allowing 18-24 year olds to qualify and imposing no age limit cap. The credit, which helps many low- and moderate-income workers and working families, was made fully refundable. It also tripled the credit amount for workers without qualifying children, benefiting more than 17 million people.

Those changes are now gone. As a result, some taxpayers may receive a smaller refund compared with the previous tax year.

This year, you must be 25-64 years old to qualify for EITC — unlike last year’s pandemic expansion that allowed 18-24 year olds to be eligible. For single filers with no children, the maximum EITC is $560. Last year, the maximum pandemic-era credit was $1,500.

To qualify, you also must have earned income and meet specific adjusted gross income and credit limits for the current, previous, and upcoming tax years.

Earned income is wages, salary, tips, self-employment, and work from your side hustle or gig — like temporary work, working as a driver for a ride-share or delivery service, or selling merchandise online. For those in the military, nontaxable combat pay is considered income.

Money received from unemployment benefits, alimony, child support, social security, pensions, or annuities is not considered earned income.

Even if you don’t have a child, you could be eligible for EITC if you meet the income threshold.

If your marital status changed, you’re a member of the armed forces, disabled, living in a rural area, a grandparent raising a grandchild, disabled, or Native American, you may be eligible for this credit.

If you aren’t sure whether you qualify for earned income, use the IRS EITC Assistant tool.

“In particular, people who have experienced a major life change in the past year…may qualify for the first time,” O’Donnell said. “The IRS urges people to carefully review this important credit; we don't want people to miss out."

Other key details about EITC

If you’re eligible for EITC, you may qualify for free tax-filing services.

If you made $60,000 a year or less, you get free tax preparation at the Volunteer Income Tax Assistance (VITA). VITA offers free tax preparation for moderate- to low-income individuals, disabled, senior citizens, or those who have a language barrier.

If you made $73,000 or less, visit the IRS free file options for name software products that let you electronically file your return.

Last, if your refund is partially based on the EITC or the Additional Child Tax Credit (ACTC), the IRS cannot issue your tax refund before mid-February — even if your refund includes other credits not related to EITC. The IRS estimates most EITC filers will see their refunds by Feb. 28 if there are no issues with their returns.

Taxpayers should electronically file and use direct deposit for refunds to prevent delays.

Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda

Read the latest personal finance trends and news from Yahoo Finance.

Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn

Source: Read Full Article